M/S. MOHANLAL MAHENDRA KUMAR PATNI CHARITABLE TRUST,KOLKATA vs. CIT(EXEMPTION), KOLKATA, KOLKATA

Per M.Balaganesh, AM

2 ITA Nos.1463/Kol/2017 M/s Mohanlal Mahendra Kumar Patni A.Yrs.2016-17 application was rejected by the then ld CIT(E) without affording any opportunity to the assessee vide proceedings dated 13.1.2009. Aggrieved, the assessee preferred an appeal before this tribunal. This tribunal in ITA No. 256/Kol/2009 dated 9.11.2009 had restored the matter back to the file of ld CIT(E) to pass a speaking order after giving opportunity of being heard to the assessee. The ld CIT(E) however passed an impugned order only on 9.5.2017 after a lapse of almost seven and half years. In the impugned proceedings before the ld CIT(E), the ld CIT(E) observed that after refusal of approval u/s 80G of the Act, the trust had no activity in Asst Year 2014-15 and that the only activity done in Asst Year 2016-17 was donating Rs 10,000/- for some charitable purposes. The assessee mentioned before the ld CIT(E) that much activities could not be undertaken as the trust could not get proper donations as exemption u/s 80G of the Act was not available with it. The ld CIT(E) reproduced the provisions contained in Rule 11AA of the Rules. The ld CIT(E) observed in his order as under:-

a) That satisfaction of the Commissioner is must about the genuineness of the activities of the trust, inter alia, before granting of approval. b) Therefore, for a trust or institution , it is mandatory to do charitable activities that will stand the test of inspection by the Commissioner before the approval is granted. c) In the absence of any worthwhile activity by the trust, the Commissioner does not have a chance to satisfy himself about the genuineness of the activity. d) The mischief rule, when applied to this situation lead to the inescapable conclusion that a trust must do charitable activity before it becomes eligible to get approval u/s 80G of the Act.

2.1. Accordingly, the ld CIT(E) observed that it is abundantly clear that the trust which is yet to start any activities or fails to furnish substantial proof cannot be granted approval u/s 80G of the Act. Accordingly, the ld CIT(E) held that he was driven to the inescapable conclusion that in absence of proof of activity, approval u/s 80G of the Act 2

3 ITA Nos.1463/Kol/2017 M/s Mohanlal Mahendra Kumar Patni A.Yrs.2016-17 cannot be granted and accordingly rejected the application on merit. Aggrieved, the assessee is in appeal before us.

…………… (5) This section applies to donations to any institution 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 fulfils the following conditions, namely :— 53[(i) 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 1254[* * *]55[***] 56[or clause (23AA)] 57[or clause (23C)] of section 10 : 58[Provided that where an institution or fund derives any income, being profits and gains of business, the condition that such income would not be liable to inclusion in its total income under the provisions of section 11 shall not apply in relation to such income, if— (a) the institution or fund maintains separate books of account in respect of such business; (b) the donations made to the institution or fund are not used by it, directly or indirectly, for the purposes of such business; and (c) the institution or fund issues to a person making the donation a certificate to the effect that it maintains separate books of account in respect of such business and that the donations received by it will not be used, directly or indirectly, for the purposes of such business;]] (ii) the instrument under which the institution or fund is constituted does not, or the rules governing the institution or fund do not, contain any provision for the transfer or application at any time of the whole or any part of the income or assets of the institution or fund for any purpose other than a charitable purpose; (iii) the institution or fund is not expressed to be for the benefit59 of any particular religious community or caste;

4 ITA Nos.1463/Kol/2017 M/s Mohanlal Mahendra Kumar Patni A.Yrs.2016-17 (iv) the institution or fund maintains regular accounts of its receipts and expenditure; 60[* * *] (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 2561 of the Companies Act, 1956 (1 of 1956), or is a University established by law, or is any other educational institution recognised by the Government or by a University established by law, or affiliated to any University established by law, 62[63[***]] or is an institution financed wholly or in part by the Government or a local authority; 64[***] 65[(vi) in relation to donations made after the 31st day of March, 1992, the institution or fund is for the time being approved by the Commis-sioner in accordance with the rules66 made in this behalf 67[; and] 68[***]] 67[(vii) where any institution or fund had been approved under clause (vi) for the previous year beginning on the 1st day of April, 2007 and ending on the 31st day of March, 2008, such institution or fund shall, for the purposes of this section and notwithstanding anything contained in the proviso to clause (15) of section 2, be deemed to have been,— (a) established for charitable purposes for the previous year beginning on the 1st day of April, 2008 and ending on the 31st day of March, 2009; and (b) approved under the said clause (vi) for the previous year beginning on the 1st day of April, 2008 and ending on the 31st day of March, 2009.]

Rule 11AA - Requirements for approval of an institution or fund under section 80G. 11AA . (1) The application for approval of any institution or fund under clause (vi) of sub-section (5) of section 80G shall be in Form No. 10G and shall be made in triplicate. (2) The application shall be accompanied by the following documents, namely :— (i) Copy of registration granted under section 12A or copy of notification issued under section 10(23) or 10(23C) ; (ii) Notes on activities of institution or fund since its inception or during the last three years, whichever is less ; (iii) Copies of accounts of the institution or fund since its inception or during the last three years, whichever is less. (3) The Commissioner may call for such further documents or information from the institution or fund or cause such inquiries to be made as he may deem necessary in order to satisfy himself about the genuineness of the activities of such institution or fund.

5 ITA Nos.1463/Kol/2017 M/s Mohanlal Mahendra Kumar Patni A.Yrs.2016-17 (4) Where the Commissioner is satisfied that all the conditions laid down in clauses (i) to (v) of sub-section (5) of section 80G are fulfilled by the institution or fund, he shall record such satisfaction in writing and grant approval to the institution or fund specifying the assessment year or years for which the approval is valid62. (5) Where the Commissioner is satisfied that one or more of the conditions laid down in clauses (i) to (v) of sub-section (5) of section 80G are not fulfilled, he shall reject the application for approval, after recording the reasons for such rejection in writing : Provided that no order of rejection of an application shall be passed without giving the institution or fund an opportunity of being heard63. (6) The time limit within which the Commissioner shall pass an order either granting the approval or rejecting the application shall not exceed six months from the 64[end of the month in] which such application was made : Provided that in computing the period of six months, any time taken by the applicant in not complying with the directions of the Commissioner under sub-rule (3) shall be excluded.]

3.1. We find that the ld CIT(E) had no where in his order had stated that the assessee had violated any of the conditions prescribed in section 80G(5) of the Act. It cannot be brushed aside that this is the second round of proceedings before the ld CIT(E). Hence the ld CIT(E) has to consider the renewal of approval of exemption u/s 80G of the Act only from 1.4.2008 onwards. For that purpose, as per Rule 11AA of the Rules, he has to look into the accounts for the last 3 years i.e upto 31.3.2008. The ld CIT(E) in his order itself states that no activities were carried out after refusal of approval u/s 80G of the Act. The order refusing approval was passed on 13.1.2009. Whether the activities were carried out by the assessee after 13.1.2009 or not is absolutely not relevant for the ld CIT(E) to grant approval for exemption u/s 80G for the period from 1.4.2008 onwards. What is relevant as per Rule 11AA is only to look into the accounts of the last 3 years i.e upto 31.3.2008. It is not in dispute that the charitable activities were indeed carried out genuinely upto 13.1.2009 even according to the order of the ld CIT(E). Hence there is absolutely no reason for the ld CIT(E) to deny the approval of exemption u/s 80G of the Act based on subsequent non-conduct of charitable activities by the assessee trust. Even for that, we find that the assessee had given reasonable explanation that for want of donations from public, the trust could not carry out more charitable 5

6 ITA Nos.1463/Kol/2017 M/s Mohanlal Mahendra Kumar Patni A.Yrs.2016-17 activities. It is common undertstanding that the general public would come forward to offer donations to registered charitable trust only if they possess approval of exemption u/s 80G of the Act. In these circumstances, we hold that the ld CIT(E) had misconceived himself by looking into the subsequent conduct of the assessee trust and drawing a conclusion that the genuineness of the activities of the trust are not proved. We direct the ld CIT(E) to grant approval of exemption u/s 80G of the Act from 1.4.2008 onwards to the assessee trust. Accordingly, the grounds raised by the assessee are allowed.

Order pronounced in the Court on 04.07.2018

Sd/- Sd/- [A.T. Varkey] [ M.Balaganesh ] Judicial Member Accountant Member Dated : 04.07.2018 SB, Sr. PS

Copy of the order forwarded to: 1. M/s Mohanlal Mahendra Kumar Patni Charitable Trust, 9, India Exchange Place, Kolkata-700001. 2. CIT(E),Kolkata, 10B, Middleton Row, Kolkata-700071. 3. C.I.T(A)- , Kolkata 4. C.I.T.- Kolkata. 5. CIT(DR), Kolkata Benches, Kolkata.