It has always been a subject of controversy that
companies/trusts/societies are first granted registrations as
charitable organizations under the Income Tax Act; and then after
few years the same Department who have provided the said
registrations, question the charitable nature of the activities
performed by such companies/trusts or societies. It is indeed
surprising for such organizations to keep on proving their
charitable nature for perpetuity.
We made an effort to create an awareness among our readers of
the fact that 'Education as on object is Charitable
per se under the Indian Income Tax Act' through
our article on the said topic in the May edition of our newsletter
"Indian Legal Impetus, 2013". Moving ahead with the said
objective through this article, we would like to highlight yet
another recent development in the field of tax for the nonprofit
organizations in India.
The Hon'ble Income Tax Appellate Tribunal, Mumbai in the a
recent case of Gia India Vs. Director of Income
Tax [Exemption] reported as ITA No.3921/ Mum/2010,
decided on September 27, 2013 has categorically held that it is
clear while grating the registration u/s 25 of the companies Act
and u/s 12A as well as Section 80G, the authorities were fully
satisfied that the activities of the Assessee are of charitable
nature. Therefore, in the facts and circumstances of the case when
no such objection was raised at the time of granting the earlier
registration not once but at four occasions and under different
provisions of Income Tax Act as well as under Companies Act then
the objections raised by the DIT are not sustainable. Accordingly,
we set aside the impugned order and direct the DIT [Exemption] to
grant approval/renewal u/s 80G(5)(vi) of the Assessee.
In the present case, the Assessee Company was incorporated in
India as a Section 25 Company, being an educational institution. It
was further granted registration/approval u/s 80G(5)(vi) of the
Income Tax Act till 31.03.2006 which was renewed up to 31.03.2009.
On expiry of the said extension and further applying for the
renewal, the DIT[E] refused the grant of renewal of approval u/s
80G only on the ground that the some of the directors of the
company are foreign nationals. It was the contention of the revenue
that the Foreign Nationals are not allowed to perform the work of a
trustee. The Hon'ble ITAT, Mumbai while observing the above
took note of Section 80G (5) of the Income Tax Act. The text of
Section 80G (5) as observed by the Hon'ble ITAT is as
"5. This section applied to donations to any
institutions or fund referred to in sub clause (iv) of clause (a)
of sub section (2), only if it is established in India for a
charitable purpose and if it fulfills the following conditions,
(v) The institution or fund is either constituted as a
public charitable trust or is registered under the societies
Registration Act, 1860 (21 of 1860), or under any law corresponding
to that Act in force in any part of India or under Section 25 of
the Companies Act, 1956 (1 of 1956), or I university established by
law, or is any other educational institution recognized by the
Government or by a University established by law, or affiliated to
any university established by law, or is an institution finance
wholly or in part by the Government or a local authority.
In the light of the above provision of the Indian Income Tax
Act, 1961, the Court noted that as per clause (v) of sub section 5
of section 80G there was no such requirement or condition that the
institution should not have any director of foreign national. The
Hon'ble ITAT further concluded that even otherwise trustee is
the Assessee Company and not the directors therefore, when the
approval was already granted twice and there is no subsequent
change in the facts and circumstances then the refusal by the DIT
[E] for renewal was not based on any legal in forces.
On perusal of the said judgment it has once again been proved
that the Indian Courts would not allow the Department to take away
the rights, without any substantial cause, from the organizations
to whom once they themselves have provided these rights on their
full satisfaction that they should be provide.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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