THE COMMISSIONER OF INCOME TAX vs. THANGADAGI TRUST, KARATAGI

ITA No.6002/2011 1 IN THE HIGH COURT OF KARNATAKA KALABURAGI BENCH DATED THIS THE 25TH DAY OF FEBRUARY, 2016 PRESENT THE HON'BLE MR.JUSTICE RAM MOHAN REDDY AND THE HON'BLE MR.JUSTICE B. MANOHAR ITA NO.6002/2011 BETWEEN: The Commissioner of Income Tax Gulbarga … Appellant (By Ameet Kumar Deshpande, Advocate) AND: Thangadagi Trust Karatagi, Tq.Gangavathi Dist.Koppal, Karnataka State … Respondent (served) This Income Tax Appeal is filed under Section 260(A) of Income Tax Act, 1961, praying to set aside the final order dated 21.01.2011 passed by the Income Tax

ITA No.6002/2011 2 Appellate Tribunal “A” Bench, Bangalore in ITA No.853/BANG/2010, in the interest of justice and equity. This appeal coming on for hearing this day, Ram Mohan Reddy J., delivered the following: JUDGMENT The substantial question of law that was framed when this appeal was admitted on 20.04.2011 reads thus: “Whether approval under Section 80 G(5)(vi) of Income Tax Act can be granted before the end of financial year, when the trust/institution had not appended the accounts for the accounting year?” 2. Few facts necessary for decision making are:- The assessee trust came into existence on 16.03.2009 and an application dated 05.08.2009 was made for registration under Section 12A and for grant of recognition under Section 80G of the Income Tax Act, 1961 (for short ‘the Act’), which was transferred to the

ITA No.6002/2011 3 jurisdictional CIT, Gulbarga on 22.09.2009, who on 24.02.2010 passed separate orders, one granting registration under Section 12A of the Act and other directing the assessee to furnish compliance under Section 80G(5)(i) of the ‘Act’. The reply submitted by the assessee on 27.02.2010 recorded the philanthropic activities of the trust, which was not commenced as on the date of making application for grant of approval under Section 80G5(iv) of the Act and therefore, was unable to annex the accounts in Form 10A or Form 10G. In the hearing before the CIT, Gulbarga, the representative for assessee submitted that the assessee had commenced activities by providing notebooks to school children, publication showing the historical and cultural importance of local temples with a view to bring civic amenities and development into the region, although did not furnish accounts or activity report for the part of the period. The CIT, Gulbarga declined grant of approval under Section 80G on the premise that the

ITA No.6002/2011 4 assessee’s application can be entertained only at the end of the accounting period when accounts are drawn and audited, so as to determine and examine whether income of the trust qualifies for exemption under Section 11(A) of the ‘Act’. In the opinion of the CIT, Gulbarga, (i) even it there is nil income, the prescriptions and prohibitions incorporated under Sections 11, 12 and 13 have to be complied with whereupon a decision for the whole year can be taken and not for part of the year; (ii) an undated certificate under Section 13(1)(c) of the ‘Act’ furnished by the trustees annexed to Form 10G dated 22.07.2009 certifying there was no violation of provision of Section 13(1)(c) of the ‘Act’ does not qualify as presumption in favour of the assessee for the remaining part of the financial year so as to claim exemption under Section 11 of the ‘Act’; and (iii) there was necessity to decide for the year as a whole and not part thereof. The CIT, Gulbarga concluded that the application for approval

ITA No.6002/2011 5 under Section 80G was premature as the conditions stipulated under the ‘Act’ were not satisfied. 3. The assessee trust questioned the order of the CIT, Gulbarga in ITA No.853/Bang/10 before the Income Tax Appellate Tribunal “A” Bench, Bangalore (for short ‘the Tribunal’) whence the assessee representative advanced the plea that the application for grant of approval under Section 80G of the Act when filed on 05.08.2009, in terms of rule 11 AA(6) of the rules was barred by limitation to pass an order and therefore recognition under Section 80G of the Act was deemed to have been granted by the revenue. 4. In opposition the departmental representative supported the order of the CIT, Gulbarga and submitted that the applicant trust was at liberty to file an application for grant of recognition under Section 80G of the ‘Act’ afresh, whence there could be an examination of the current status and decide the issue on merit.

ITA No.6002/2011 6 5. The ‘Tribunal’ making reference to Section 80G(5)(i) of the Act observed that the CIT, Gulbarga, mistook the provisions of the Act to mean that it was only after deriving income by the trust and on examining whether or not money was to be used and applied in such a manner so as to comply with the Sections 11, 12, clause (23AA) or clause (23C) of Section 10 of the Act, recognition under Section 80G(5)(iv) could be granted. It was further observed that recognition under Section 80G of the Act cannot be granted on the presumption of compliance of the ‘Act’, even though genuine donors are deprived of the benefits of the Act. 6. In view of 80G(5)(i) of the Act the ‘Tribunal’ observed that when an institution/trust derives any income, such income would not be liable to inclusion in its total income by virtue of its recognition under Section 12A of the Act and therefore the assessee is entitled to grant of recognition under Section 80G of the

ITA No.6002/2011 7 ‘Act’ subject to compliance of other provisions of the ‘Act’. It further noticed “Action Points” provided in Form 10G, item No.3 stipulating that though no time limit is prescribed for submitting the application, but in the mutual interest of both itself and donors should submit the application as soon as it is formed. In addition, it noticed, that the application provided that the trust should file the application for grant of recognition as soon as it is formed and the revenue was bound to examine the documents, which are made available at that point of time and arrive at a decision for grant of recognition under Section 80G of the ‘Act’. 7. On the facts ‘Tribunal’ noticed that the assessee commenced activity by providing notebooks to school children and publication of development of the region and in order to support the activity was only by way of flow of finance, which can happen on receipt of donations. Recognition under Section 80G of the ‘Act’,

ITA No.6002/2011 8 as observed by the Tribunal will be one of the factors to induce donors to donate funds to trusts, to encourage such kind of activity by the trust for the development of the society as well as the Nation. For the said reasons the ‘Tribunal’ allowed the appeal, set aside the order of the CIT, Gulbarga and directed grant of recognition under Section 80G(5)(vi) read with rule 11AA(5) of the ‘Act’. 8. Having noticed the reasons, findings and conclusion arrived at by the ‘Tribunal’, we do not find any substantial question of law made out for interference with the order impugned. 9. Sri Ameet Kumar Deshpande, learned counsel for the appellant – revenue submits that if on an examination and verification of the accounts of the assessee trust, it is found that the monies received as donations are not used for the purpose for which the trust was created or its activities, the revenue be

ITA No.6002/2011 9 permitted to withdraw the recognition under Section 80G(5)(vi) of the Act. It is open for the authorities under the ‘Act’, to take such action as is permissible under the ‘Act’, in the such eventuality and not for this court to extend permission. Appeal devoid of merit dismissed. Sd/- JUDGE Sd/- JUDGE sdu