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Judgment
M.R. Shah, J.�As common question of law and facts arise in all these appeals, they are disposed for by this common order. Feeling aggrieved and dissatisfied with the impugned order passed by the learned Income-tax Appellate Tribunal, Rajkot Bench, Rajkot (hereinafter referred to as "the Tribunal"), dated November 22, 2013, passed in I.T.A. No. 402/RJT/2013 by which the learned Tribunal has allowed the said appeal preferred by the respondent-assessee and has quashed and set aside the order passed by the Commissioner of Income-tax, Rajkot-I, and has directed him to grant the recognition under section 80G(5) of the Income-tax Act, 1961, to the assessee-trust, the Revenue has preferred present Tax Appeal No. 306 of 2014 with the following proposed question of law:
"Whether the Income-tax Appellate Tribunal is justified in law and on facts in directing to grant recognition under section 80G(5) of the Income-tax Act to the assessee-trust?"
1.1. Feeling aggrieved and dissatisfied with the impugned order passed by the learned Income-tax Appellate Tribunal, Rajkot Bench, Rajkot (hereinafter referred to as "the Tribunal"), dated December 13, 2013, passed in I.T.A. No. 355/RJT/2013 by which the learned Tribunal has allowed the said appeal preferred by the respondent-assessee and has quashed and set aside the order passed by the Commissioner of Income-tax, Rajkot I and has directed him to grant the recognition under section 80G(5) of the Income-tax Act, 1961, to the assessee-trust, the Revenue has preferred present Tax Appeal No. 409 of 2014 with the following proposed question of law:
"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is justified in law and on facts in direction to grant approval under section 80G(5) of the Act to the assessee-trust?"
1.2. Feeling aggrieved and dissatisfied with the impugned order passed by the learned Income-tax Appellate Tribunal, Rajkot Bench, Rajkot (hereinafter referred to as "the Tribunal"), dated December 13, 2013, passed in I.T.A. No. 657/RJT/2012, by which, learned Tribunal has allowed the said appeal preferred by the respondent-assessee and has quashed and set aside the order passed by the Commissioner of Income-tax, Rajkot-I, and has directed him to grant the recognition under section 80G(5) of the Income-tax Act, 1961, to the assessee-trust, the Revenue has preferred present Tax Appeal No. 416 of 2014 with the following proposed question of law.
"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is justified in law and on facts in direction to grant approval under section 80G(5) of the Act to the assessee-trust?"
For the sake of convenience, the facts in Tax Appeal No. 306 of 2014 are considered.
That the assessee-trust, Shree Govindbhai Jethalal Nathavani Charitable Trust, Rajkot, made an application in Form No. 10G for grant approval under section 80G(5) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). The same form was accompanied with the xerox copy of the trust deed and the registration certificate dated August 18, 2011. As per the trust deed, the main objects of the trust are educational, social activities, medical, etc. The Assessing Officer issued a notice dated February 12, 2013, calling certain details in respect of its application. In order to verify the facts stated in the application, the trust was asked to produce trust deed, books of account, relevant vouchers, donation book and minutes book in original. That on a perusal of the books of account for the financial year 2011-12 it was found that the trust failed in making the expenditure to the extent of 85 per cent of its income which, according to the authority, was necessary as per the provisions of section 80G(5) of the Act. That the authority was of the view that as the trust has failed in complying with the requirements for approval under section 80G as laid down under section 80G(5) of the Act and rule 11AA of the Income-tax Rules, 1962, the Commissioner of Income-tax, Rajkot-(I) rejected the application submitted by the assessee seeking approval under section 80G(5) of the Act.
3.1. Feeling aggrieved and dissatisfied with the order passed by the Commissioner rejecting the application made by the assessee seeking approval under section 80G(5) of the Act the assessee-trust preferred an appeal before the learned Tribunal and by the impugned judgment and order and considering the decision of the Punjab and Haryana High Court in the case of CIT v. O.P. Jindal Global University reported in [2013] 38 Taxmann.com 366 (P & H), by which, the Punjab and Haryana High Court has taken the view that at the time of granting approval of exemption under section 80G, the object of the trust is required to be examined and application of funds can be examined by the Assessing Officer at the time of framing the assessment, the Tribunal has held that the Commissioner has materially erred in refusing to registration/recognition of section 80G(5) of the Act and has, consequently, set aside the order of the Commissioner and has directed to grant recognition under section 80G(5) of the Act to the assessee trust.
3.2. Feeling aggrieved and dissatisfied with the impugned judgment and order passed by the learned Tribunal, the Revenue has preferred the present tax appeal with the aforesaid proposed substantial question of law.
Shri Pranav Desai, learned advocate has appeared on behalf of the Revenue, in the respective appeals and Shri Tushar Hemani, learned advocate has appeared on behalf of respondent-trust in Tax Appeal Nos. 306 of 2014 and 409 of 2014. Though served, nobody appears on behalf of respondent in Tax Appeal No. 416 of 2014.
4.1. Shri Pranav Desai, learned advocate for the Revenue, has vehemently submitted that in the facts and circumstances when it was found that the assessee-trust failed in making expenditure to the extent of 85 per cent of its income and, therefore, it did not satisfied the condition for approval under section 80G(5) of the Act more particularly clause (i) of section 80G(5) of the Act the learned Tribunal has materially erred in directing to grant recognition under section 80G(5) of the Act to the assessee-trust. It is submitted that as such the learned Tribunal has committed gross error in ignoring the provisions of clause (i) of sub-section (5) of section 80G. It is submitted that the learned Tribunal has failed to appreciate that the first condition for quantification of donations received by a trust as deductible under section 80G (as laid down in clause (i) of section 80G(5) of the Act that no income under section 11 or section 12 should be inclusive in the total income of the trust) has not been fulfilled by the trust. It is submitted that, therefore, the learned Tribunal has materially erred in quashing and setting aside the order passed by the Commissioner and has materially erred in directing the Commissioner to grant recognition under section 80G(5) of the Act to the assessee-trust.
Shri Tushar Hemani, learned advocate for the respondent-trust in Tax Appeal Nos. 306 of 2014 and 409 of 2014, has submitted that as such the question raised in the present appeal is squarely covered by the decision of the Division Bench of this court in the case of N.N. Desai Charitable Trust Vs. Commissioner of Income Tax, as well as the decision of the Punjab and Haryana High Court in the case of O.P. Jindal Global University (supra). It is submitted that in the case of N.N. Desai Charitable Trust (supra) the Division Bench has held that while considering the certification of the institution for the purpose of section 80G of the Act the authority granting approval cannot act as an assessing authority and the inquiry should be confined to finding out if the institution satisfies prescribed conditions. It is submitted that, therefore, no error has been committed by the learned Tribunal in quashing and setting aside the order passed by the Commissioner and, consequently, directing the Commissioner to grant recognition under section 80G(5) of the Act to the respective assessee-trust. Making the above submissions and relying upon the above decisions, it is requested to dismiss present appeals.
Heard the learned advocates for the respective parties at length and perused the order passed by the learned Commissioner as well as the impugned judgment and the order passed by the learned Tribunal. At the outset, it is required to be noted that the question is with respect to the recognition approval under section 80G(5) of the Act to the respective assessee-trust. The same was refused by the Commissioner by observing that the trust failed in making expenditure to the extent of 85 per cent of its income which is required as per clause (i) of sub-section (5) of section 80G of the Act. However, it is required to be noted and it is not in dispute that as such the main object of the trust as per the trust deed are educational, social activities, medical, etc. Therefore, the short question which is posed for consideration of this court is whether, in the facts and in the circumstances of the case, the learned Tribunal has committed any error in quashing and setting aside the order passed by the Commissioner rejecting the application made by the assessee trust seeking approval under section 80G(5) of the Act and has erred in directing the Commissioner to grant recognition under section 80G(5) of the Act? As such the issue involved in the present case is now not res integra in view of the decision of the Division Bench in the case of N.N. Desai Charitable Trust (supra). While considering the certification of institution for the purpose of section 80G, the Division Bench has specifically observed and held that inquiry should be confined to finding out if the institution satisfies the prescribed conditions as mentioned in section 80G of the Act. In the aforesaid case also, the Commissioner refused the application for registration under section 80G(5) of the Act on the ground that in the past for some period the petitioner had not applied 75 per cent of the income of the trust for the purpose of the trust. While considering the aforesaid and the scope of the inquiry at the time of recognition under section 80G(5) of the Act by the appropriate authority, the Division Bench has observed and held as under (page 456 of 246 ITR):
"From the aforesaid, it appears that the sole ground that has prevailed with the Commissioner of Income-tax in refusing the application is that because in the past for some period the petitioner has not applied 75 per cent of the income of the trust for the purposes of the trust, therefore, the income of the assessee was liable to be included in the taxable income and the assessee did not fulfill the condition of section 80G(5)(i) of the Act.
It would be apposite here to reproduce the relevant provisions of section 80G(5)(i) of the Act.
''Where the institution or fund derives any income such income would not be liable to inclusion in its total income under the provisions of sections 11 and 12 (or clause (22) or clause (22A) or clause (23) or clause (23AA) or clause (23C)) of section 10.''
Before embarking on analyzing the provisions of sub-section (5) of section 80G, one must notice that section 80G does not relate to assessment of the trust or the institution whose income are not liable to be included in the computation of taxable income under various provisions of the Act referred therein. Primarily, section 80G is related to giving deduction in respect of donations made by a person who, but for this provision, would not be eligible for such deduction because the donations are not ordinarily considered to be expenses incurred for the purpose of earning income and liable to be deducted therefrom. Since all donations generally are not treated as eligible for deduction, but only such donations as are made to funds or institution named in sub-section (2) of section 80G are eligible for such deduction and as noticed by us above, it also includes a general clause ''any fund or institution to which this section applies'' a provision was needed to identify the trusts or funds or institutions not specifically named in statute but fell in that category. That object was achieved by enacting sub-section (5) of section 80G which helps identify the funds or institutions donation to which qualifies for deduction under section 80G. It provides that fund or institution referred to in sub-section (2)(iv) are such whose income would not be liable to be included in its total income under the provisions of sections 11 and 12 or clause (22) or clause (22A) or clause (23) or clause (23AA) or clause (23C) of section 10. Prior to insertion of clause (vi), it being not a statutory requirement, even in the absence of a certificate under section 80G, it was possible for a donor to satisfy an Income-tax Officer independently about the eligibility of donation made by him for deduction. It was in order to keep a check on an inquiry into such details which may not be possible for every donor to harness and make good a claim which otherwise he is legitimately entitled to make, and also to relieve Income-tax Officer to hold such enquiry in respect of donations made to such institution at different levels and to avoid possibility of different conclusions reached by different officers in relation to donations made to the same fund or institution, to simplify the procedure, the provision was made for recognizing, what was, a prevailing practice by making a statutory provision in that regard. It is also to be noticed that whether the income of an institution or fund would ultimately be liable to inclusion in its total income at the close of assessment year or not cannot be determined at the time of making of donation. The eligibility of the donation for deduction has to be considered with reference to the point of time at which donation is made and not with respect to the time in future depending on assessment of the done. That is where the use of the verb in future tense ''would'' has been used and not in present or past perfect tense so as to take into consideration the actual inclusion or exclusion or the extent of inclusion or exclusion. The direct nexus of clause (i) of sub-section (5) of section 80G, as appears to us, is to the eligibility of the institution or the fund to claim that its income is not liable to be included in computation of the total income. The two are different concepts. First, whether an institution or fund is such whose income is not liable to be included in the computation of the total income it depends on its status or character. The second is actual assessment of income, which necessarily takes place in future after donation is received by the done on fulfillment of other conditions about application of income by the eligible trusts, which in the very nature of things can operate only after receipt of income. The actual extent of exclusion from or inclusion in the computation of the total income, the receipts of such institution or fund, depends on fulfillment of further conditions which may or may not exist at the close of the year and has no direct relation to the purpose with which the provision is made. The latter falls in the realm of the assessment of the trust, institution or fund which derives income which is not ordinarily includible in its total income. The liability to assessment is not affected by issuance of recognition certificate or approval certificate issued under clause (vi) of sub-section (5) of section 80G nor it depends upon the fact whether donor is ultimately gets deduction in respect of such donation. It may be relevant to take cognizance that all donations are not in their entirety eligible for deduction. There exists a maximum limit also for such eligibility and donations beyond such limit by a person may not get deduction, even if it is to an approved institution under section 80G. Likewise, actual inclusion of any income in the assessment of the done as taxable income, does not affect the entitlement of the donor to claim deduction under section 80G, if on the date when he made the donation the conditions were fulfilled. That was the law before the insertion of clause (vi) and apart from the fact that by introducing clause (vi) with rule 11AA a method of proving the eligibility to claim deduction has been provided by the statute, there has been no alternation in the substantive provision, that is to say, entitlement of the donor to claim deduction depends on the eligibility of the done to claim exemption of its income on the date when donation is made. Examining from this angle, we find that for applicability of sections 11 and 12, what is required is that such trust must have moved an application for registration under section 12A and registered for that purpose. Once a trust is registered under section 12A, its income from property, which includes donations whether covered under section 11(1)(d) or under section 12 such donations are deemed to be income from property, is not to be included in its total income under section 11 or section 12. The enquiry under section 80G(5) cannot go beyond that.
A perusal of section 11 and section 12 would disclose that income from property held for charitable or religious purposes under a trust is not included in the total income of the previous year of the persons in receipt of the income where any such income has accumulated or set apart for application to such purposes in India to the extent to which the income so accumulated or set apart is not in excess of 25 per cent of the income from such property. In clause (d) of sub-section (1) of section 11 income in the form of voluntary contributions made with a specific direction that they shall for part of the corpus of the trust or institution, that is to say, donations made with directions that the donation shall form part of corpus of the trust or institution are also not includible in the income of the trust. It may be further observed that merely because the accumulation of the income from property exceeds 25 per cent it does not result in inclusion of the entire income in the taxable income of the assessee. The two conditions speak out, firstly, that income derived from property to the extent to which such income is applied to such purposes in India is not to be included in the computation of the total income and it is only where there is accumulation of income, such accumulation exceeds 25 per cent shall not be liable to be exempt from income-tax but in case accumulation is restricted to 25 per cent even accumulation is not to be included in the computation of total taxable income. That too is not in absolute terms. In that regard sub-section (2) of section 11 points out certain conditions and contingencies in which that limit is also relaxed. We need not dilate here in detail on this aspect. This we have noticed only for the purpose of showing, firstly, that as on the date when donation is made which is the relevant date for the purposes of claim of donor to deduction under section 80G it is not possible to point out what shall be the exact state of affairs that will exist at the close of the year nor is it possible for the person considering the application for approval, which requires to consider whether the income derived by such trust would not be liable to be included in its total income, to determine, as on the date of application whether the income which will henceforth be derived by the trust asking for approval, if it is otherwise eligible to claim exemption from the inclusion of such income in the taxable income, would in fact be entitled to sustain that claim to the fullest extent or not at the time of assessment. That is the jurisdiction and authority of the Assessing Officer to enquire into and make appropriate order at the time when assessment of the trust is being made. The Authority examining the question whether a fund or institution is eligible to be certified for the purposes of section 80G is not to act as an Assessing Officer and pronounce upon the pending assessments. The Commissioner of Income-tax, in examining this aspect, in respect of pending assessments, in our opinion, exceeded his jurisdiction while considering the application for approval. He, as a matter of fact, stepped into the jurisdiction of the Assessing Officer, decided upon the claim of the assessee in respect of its assessment of income then pending and acted as if he was the Assessing Officer deciding upon the assessment of the trust. While dwelling on the merits of pending assessment he failed to consider that up to March 31, 1998, the trust has already enjoyed approval and the donors who had already made donations to it would be entitled to such benefit notwithstanding the fate of assessment of the trust. The actual assessment of the trust and its actual liability to tax in accordance with provisions of section 11 and section 12 and section 12A has no bearing on the claim of the donors for whose benefit approval is accorded. Explanation 2 to section 80G(5) which tells in no uncertain terms that a deduction to which the assessee is entitled in respect of the donation made to an institution or fund to which sub-section (5) applies shall not be denied merely on either or both the following grounds, namely, that any part of income of the institution or fund has become chargeable to tax due to non-compliance with any of the provisions under section 11, section 12 and/or section 12A and under clause (c) of sub-section (1) of section 13 the exemption under section 11 or 12 can be denied to an institution or fund in respect of income accruing or arising to it from any investment referred to in clause (h) of sub-section (2) of section 13.
Likewise, the institution or fund whose income is not to be included in the taxable income of the recipient under the provisions of section 10, namely, clause (22) or clause (22A) or clause (23) or clause (23AA) or clause (23C) would go to show that these clauses identified different institutions for the purpose of granting exemptions, some of which require approval by publication in Official Gazette, some of which require to bear a particular character or the like. Once that character or the condition is fulfilled, section 10 operates. For illustration, under clause (22), as it was in force up to March 31, 1999, any income of a university or other educational institution existing solely for educational purposes and not for purposes of profit was not to be included in total income. Now, if an approval is sought by such institution what the approving authority can seek to enquire is whether the applicant university or educational institution which is solely existing for educational purposes, and whether its purpose is not to earn profit. Under clause (23), exemption is in respect of income of an association or institution established in India which may be notified by the Central Government in the Official Gazette having regard to the fact that the association or institution has as its object the control, supervision, regulation or encouragement in India of the games of cricket, hockey, football, tennis or such other games or sports as the Central Government may, by notification in the Official Gazette, specify in this behalf. The application for approval in respect of any such institution, if it falls within clause (iv) of sub-section (2) of section 80G, an enquiry by the Commissioner of Income-tax could only extend to find out whether the association or institution is so notified under section 10(23). It cannot by itself examine the validity or correctness of notification nor can it grant approval even if he concludes that such institution exists for the purposes mentioned in clause (23), if notification by the Central Government is not issued in that regard. That is demonstrative of the scope of enquiry by the Commissioner of Income-tax while enquiring the existence of condition under section 80G(5)(i). That extends to eligibility to exemption under various provisions of the Income-tax Act referred to in that sub-section, but not to actual assessment which depends on fulfillment of further conditions by the eligible institutions, trusts or funds. In none of these cases inquiry of the Commissioner of Income-tax under section 80G(5)(vi) extend to the actual computation of income under the assessment that is likely to be framed. We see no reason that such exercise can be taken in respect of a trust which is claiming exemption not under section 10 but under section 11 and 12 of the Act, once the Commissioner of Income-tax finds that the person who is claiming approval is the assessee who claimed his income not liable to be included in taxable income under section 11 or section 12. The enquiry relates to whether it is registered under section 12A, whether it is a trust wholly for charitable purposes or religious purposes, and whether income received by it is liable to be considered under section 11, but it does not go beyond that to examine as an Assessing Officer whether the income received by it at the close of any particular year or years was or was not actually included in taxable income in the past. This consideration must be whether the income receivable by it will or will not be liable to be considered for exclusion under section 11. Such enquiry obviously cannot include an enquiry whether at the close of previous year the done will actually be able to sustain such claim because of non-fulfillment of some conditions by him as to applicability or accumulation of income, as it is not possible to predicate that in praesenti when donation is made. As we have noticed above, that question would depend upon the facts existing at the close of the assessment year and at the time of considering the application it cannot be examined in the light of what is going to happen in pending assessments in respect of which approval certificate was already existing and assessment of which would not affect the donations made to the trust during that year."
Similar view has been expressed by the Punjab and Haryana High Court in the case of O.P. Jindal Global University (supra). Applying the ratio of the aforesaid decisions to the facts of the case on hand, it cannot be said that the learned Tribunal has committed any error in quashing and setting aside the order passed by the Commissioner refusing to grant recognition under section 80G(5) of the Act to the respective assessee-trust. We are in complete agreement with the view taken by the learned Tribunal. Under the circumstances, the question raised in the present appeals is answered against the Revenue and in favour of the assessee-trust. In view of the above and for the reasons stated above, all the appeals fail and same deserve to be dismissed and are, accordingly, dismissed. No costs.