India: Whether DIT [Exemption] Is Justified In Refusing Renewal/ Registration U/S 80G Of The Income Tax When Registration Has Already Been Granted Once

Last Updated: 29 November 2013
Article by Shipra Makkar Devgun

Most Read Contributor in India, September 2016

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 follows:

"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, namely:-



(iii) .......................................


(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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