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Facts
The assessee, TVS Charities, applied for approval under Section 80G of the Income Tax Act. The CIT(E) rejected the application, holding that the trust's objects were not for the general public and involved principles of mutuality, and also questioned the utilization of funds for tax payment.
Held
The Tribunal held that the payment of Income Tax from the current year's income is to be treated as an application for charitable purposes for preserving the trust's corpus, citing a High Court judgment. It also found that the trust's objects are for public utility and not for a specific group, thus rejecting the doctrine of mutuality.
Key Issues
Whether the payment of Income Tax constitutes an application of income for charitable purposes, and whether the assessee's objects fall within the definition of charitable purposes as per Section 2(15) and are not based on the principle of mutuality.
Sections Cited
80G, 2(15), 13(3), 13(4)
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Income Tax Appellate Tribunal, ‘A’ BENCH: CHENNAI
Before: SHRI MANU KUMAR GIRI & SHRI AMITABH SHUKLA
आदेश / O R D E R
PER MANU KUMAR GIRI, JM:
1. The captioned appeal filed by the assessee is directed against order of the Ld. Commissioner of Income Tax (Exemption), Chennai, [‘CIT(E)’ in short] dated 30.12.2024 rejecting the application filed by the assessee dated 29.06.2024 in Form No.10AB under clause (iii) of first proviso to section 80G(5) of the Income Tax Act, 1961 ("the Act" in short) seeking approval u/s.80G of the Act.
The assessee raised the following grounds of appeal:
TVS Charities :: 2 ::
1. The order of the Commissioner of Income Tax (Exemptions) [CIT] is against the law, the facts and circumstances of the case and the principles of equity and natural justice.
2. The CIT ought to have given the appellant sufficient opportunity of being heard. The CIT ought to have given an opportunity to the appellant to demonstrate why the case of the appellant falls within the definition of section 2(15).
3. The CIT failed to appreciate that all the particulars called for by him vide his notice dated 25.11.2024 were materials on record. Further details were also filed during the course of Personal hearing before CIT 30.12.2024. The CIT erred in rejecting the application without considering any of the documents.
4. The CIT erred in holding that the appellant trust has not involved itself in any of the charitable activities and thus not eligible for approval u/s 80G.
5. The CIT erred in holding that the appellant had not utilised 85% of the income towards the object of the society and has only accumulated the same. The CIT failed to appreciate that the appellant had duly expended the money towards payment of taxes, which is towards objects, preservation and maintenance of the trust.
6. The CIT erred in holding that the appellant's object did not fall within the meaning of education/medical/relief for poor and thus did not fall within the definition of section 2(15) of the Act.
7. Alternatively, the CIT erred in rejecting the contention of the appellant that its object falls under the limbs of advancement of objects of general public utility and hence is charitable in nature.
8. The CIT erred in holding that the objects of the appellant trust only benefitted a section of the society and hence the appellant is not a charitable trust. The CIT erred in rejecting the application filed by the appellant on such surmises.
9. The appellant craves the leave of the Hon'ble Tribunal to adduce additional grounds in support its contentions before and during the course of hearing of this appeal.
Brief facts are that the assessee, TVS Charities was established on 28.12.1955 for the purpose of providing education, medical assistance and relief to the poor. The assessee states that it had filed an application in Form 10AB under clause (iii) of first proviso to section 80G of the Income Tax Act, 1961 on 29.06.2024 seeking approval under the said section. The assessee states that a show cause notice was issued by the Commissioner of Income Tax (Exemptions) [‘CIT(E)’] on 20.09.2024 TVS Charities :: 3 ::
requiring the assessee to furnish detailed note on the activities actually carried out by the trust. Further in the said notice, the ‘CIT(E)’ also required the assessee to file certain details/documents as mentioned therein on or before 07.10.2024. The assessee filed the response on 18.10.2024. Thereafter, the ‘CIT(E)’ issued another notice vide letter dated 25.11.2024 with the request to provide the details on or before 02.12.2024. In response to the letter, the assessee furnished the requisite details on 16.12.2024 along with documentary evidence. The assessee’s case was posted for a personal hearing on 30.12.2024 and its Trustee and authorized representative made further submission. The ‘CIT(E)’ without considering any of the submissions of the assessee held that the application dated 29.06.2024 filed in Form No. 10AB under clause (iii) of first proviso to section 80G(5) of the Income Tax Act, 1961, seeking approval u/s. 80G is not maintainable and hence its application is rejected. In the impugned order, the ‘CIT(E)’ held that the objects of the assessee does not fall within the definition of section 2(15) of the Act and thus rejected the application filed by the assessee. Aggrieved by the order of the Commissioner of Income Tax (Exemptions), the assessee has preferred this appeal before us.
4. On examination of the financials, the Ld.CIT(E) noticed that the assessee was in receipt of income in the nature of income from investments, rental income, subscription received from Five Members for TVS Charities ordinary membership but the said income was not for mainly for charitable purpose. The Ld.CIT(E) further opined that the object of the society is for the benefit of the specific group of people and not for general public. Therefore, he invoked principles of mutuality also and treated the assessee trust as not charitable.
Now, the assessee is in appeal before us against the order of the Ld.CIT(E).
The Ld. Counsel for the assessee contended regarding utilization of funds for the payment of Income Tax is to be treated as application of its income for the charitable purposes. At the outset, the Ld. Counsel for the assessee relied upon the judgment of the jurisdictional High Court in the case of CIT v. Janaki Animal Ayya Nadar Trust reported in [1985] 23 Taxman 416 (Madras).
For the second issue i.e. relating to principles of mutuality, the Ld. Counsel for the assessee referred Page Nos.17 & 18 of the Paper Book which enumerates ‘notes on activities of the Trust’. He further referred Page Nos.24 & 26 of the Paper Book which explains ‘Memorandum of Association of TVS Charities and Rules & regulations of TVS Charities’, which reads as under:
3. The Income funds and property of the Society whencesoever derived shall be held as a firm and binding trust for, and applied solely to, charitable purposes and no portion thereof shalt pe paid or transferred directly or TVS Charities :: 5 ::
indirectly by way of-dividend, bonus or otherwise howsoever by way of profits to the members of the Association.
In the event of the object for-which the Trust / Society has been created shall fail and cannot be fulfilled or in the event of the dissolution or winding up of Trust/Society, the properties and funds belonging to the Trust /Society shall under no circumstances be distributed to its Members or any other person having substantial interest in the Trust as per the provisions of sec. 13.(3) &13 (4) of the Income tax Act, 1961, but the Trustees/Executive Committee shall be at liberty to transfer the properties and funds of the Trust/ Society to other Trusts / Societies / institutions similar objects of Public Charity.
The ld. Counsel for the assessee further submitted that the Ld.CIT(E), without going into the Memorandum of Association of TVS Charities and its objects has made a sweeping remark that the society is for the benefit of particular section of people and not for the general public. Hence, the society is involved and existence of principles of mutuality and not charity.
Per contra, the CIT-DR, Ms.E. Pavuna Sundari, has relied upon the impugned order especially Para No.4.1 and contended that the impugned order may kindly be upheld and appeal of the assessee be dismissed.
We have heard rival submissions and perused the Paper Book and case laws cited by the Ld. Counsel for the assessee. We find that the issue relating to application of entire income for payment of Income Tax is squarely covered by the jurisdictional High Court judgment in the case of CIT v. Janaki Animal Ayya Nadar Trust reported in [1985] 23 Taxman 416 (Madras) which held as under:
The income determined for the assessment year was Rs. 69,152. During that year a sum of Rs. 1,21,540 has been paid as income-tax. As the income was not sufficient to pay the tax, it should have come from the corpus or by borrowings from the bank, etc. We are not here concerned with the powers of TVS Charities :: 6 ::
the trustee as regards the corpus. There is no prohibition in law for a trustee spending the entire current year's income for payment of tax. Payment of tax is necessary to preserve the property of the trust when a demand is lawfully made. Even though the trust may not accept the demand and challenges the same on appeal, that is not relevant for considering the question whether payment has to be made to preserve the trust property. The expenditure incurred by way of payment of tax out of the current year's income has to be considered as application for charitable purposes. This is because payment is made to preserve the corpus, the existence of which is absolutely necessary for the trust. Therefore, as the entire income during the assessment year has been applied for payment of tax, it should be treated as having been applied for charitable purposes and the assessee's claim should be taken to be well founded as has been held by the Tribunal.
Hence, respectfully following the jurisdictional High Court judgment in the case of CIT v. Janaki Animal Ayya Nadar Trust reported in [1985] 23 Taxman 416 (Madras), we are of the considered view that the utilization of funds for the payment of Income Tax is to be treated as application of its income for the charitable purposes.
Regarding the second issue i.e. doctrine of mutuality, we are of the considered view that the Ld.CIT(E) without going into the activities and objects of the trust has made sweeping general remark that the object of the society is for the benefit of a specific group of people and not for general public. We note that the Ld.CIT(E) even didn’t see the ‘Memorandum of Association of TVS Charities and Rules & regulations of TVS Charities’ [Page Nos.24 & 26 of the Paper Book] which reads as under:
3. The Income funds and property of the Society whencesoever derived shall be held as a firm and binding trust for, and applied solely to, charitable purposes and no portion thereof shalt be paid or transferred directly or indirectly by way of -dividend, bonus or otherwise howsoever by way of profits to the members of the Association.
4. In the event of the object for-which the Trust / Society has been created shall fail and cannot be fulfilled or in the event of the dissolution or winding up TVS Charities :: 7 ::
of Trust/Society, the properties and funds belonging to the Trust /Society shall under no circumstances be distributed to its Members or any other person having substantial interest in the Trust as per the provisions of sec. 13.(3) &13 (4) of the Income tax Act, 1961, but the Trustees/Executive Committee shall be at liberty to transfer the properties and funds of the Trust/ Society to other Trusts / Societies / institutions similar objects of Public Charity.
11. Having seen the objects, we find that there is no mutuality and is not meant for a benefit for the particular group of people or its members.
Therefore, In the light of the above conspectus of matters, we set aside the order of the Ld.CIT(E) and directing the Ld.CIT(E) to allow the application filed by the assessee dated 29.06.2024 in Form No.10AB under clause (iii) of first proviso to section 80G(5) of the Act, seeking approval u/s.80G of the Act.
In the result, appeal filed by the assessee is allowed.
Order pronounced on the 18th day of August, 2025, in Chennai.