AVI FOUNDATION,NAGPUR vs. THE HONORABLE COMMISSIONER OF INCOME TAX PUNE, PUNE

PER SATBEER SINGH GODARA, J.M.

These assessee’s twin appeals I.T.A.Nos.1345 &

1369/PUN./2023 arise against the CIT-(Exemption), Pune,

Pune’s common Din and Notice Nos.ITBA/EXM/F/EXM45/

in proceedings 2023-24/1056296885(1), dated 20.09.2023,

u/s.12AA of the Income Tax Act, 1961 (in short “the Act”).

Case called twice. None appears at assessee’s

behest. It appears to have filed it’s adjournment application

which stands rejected.

2 ITA.Nos.1345 & 1369/PUN./2023 2. Ld. CIT-DR points-out at the outset that the

assessee has preferred instant twin appeals against the very

impugned order passed by the CIT-(E) rejecting it’s sec.80G

application filed on 28.03.2023 in following terms :

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10 ITA.Nos.1345 & 1369/PUN./2023 3. Mr. Patel vehemently argued that CIT(E) has rightly

invoked the time limitation prescribed u/sec.80G(5) proviso(iii)

on the ground that the same could not have been filed beyond

the specified period. We find that the instant issue of

assessee’s sec.80G registration barred by limitation; is no

more res integra as duly emerges from a perusal of the

impugned order(s) itself that it had commenced it’s charitable

activities w.e.f. 29.07.2020 onwards. This tribunal’s recent

coordinate bench(es) order in ITA.No.1220/PUN./2023 decided

on 05.01.2024 TB Lulla Charitable Foundation, Sangli vs.

CIT(E) has already decided the instant limitation issue in

assessee’s favour and against the department as under :

“2. In this case, the ld. Commissioner of Income Tax(Exemption)

has rejected the application of the assessee dated 08/04/2023 filed

in Form 10AB for approval u/s 80G of the Act, only on one ground

that the application has been filed beyond six months of

commencement of activities and hence held it as time barred. The

ld.CIT(E) held as under :

“8. Considering the above facts, the present application filed in Form No.10AB under clause (iii) of first proviso to section 80G(5) of the Act is liable to be rejected without going into the merits since the assessee has not filed the present application within the time limit allowed under clause (iii) of first proviso to section 80G(5) of the Income Tax Act, 1961.

11 ITA.Nos.1345 & 1369/PUN./2023 9. In view of the above, the application filed by the assessee is hereby rejected without going into the merits of the case and the provisional approval granted on 09/07/2021 under clause (iv) for first proviso to section 80G(5) of the Income Tax Act, 1961 is hereby cancelled.”

2.1 The Commissioner of Income tax (Exemption) has not

discussed the merits of the case. He held that the application is not

maintainable.

Approval u/s 80G(5) of the Act vide orders dated 09/07/2021 for

period from A.Y.2021-22 to A.Y.2023-24 and dated 22/09/2022for

period from A.Y.2023-24 to A.Y.2025-26. The assessee has

approval u/s.12A(1)(ac) of the Act dated 30.01.2019.(copy filed by

assessee in the paper book).

application of the assessee was time barred or not?

To decide this question, we have to first understand the

relevant statutory provisions of the Income Tax Act.

4.1 The relevant part of Section 80G(5) of the Income tax Act is

reproduced here as under :

12 ITA.Nos.1345 & 1369/PUN./2023 80G. (1) In computing the total income of an assessee, there

shall be deducted, in accordance with and subject to the

provisions of this section,—

(i) …

(ii) …..

(2) The sums referred to in sub-section (1) shall be the

following, namely :—

(a) ……..

(b) …………..

(c) …………………

(d)………….

(4) ……………………….

(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 :—

(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 12 or clause

(23AA) or clause (23C) of section 10 :

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

13 ITA.Nos.1345 & 1369/PUN./2023 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

benefit of any particular religious community or caste;

(iv) the institution or fund maintains regular accounts of

its receipts and expenditure;

(v) the institution or fund is either constituted as a public

charitable trust or is registered under the Societies

14 ITA.Nos.1345 & 1369/PUN./2023 Registration Act, 1860 (21 of 1860), or under any law

corresponding to that Act in force in any part of India or

under section 2571 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, or is an

institution financed wholly or in part by the

Government or a local authority;

(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 Principal

Commissioner or Commissioner; (emphasis

supplied)

(vii)…………

(viii) ……….

(ix)…………..

Provided that the institution or fund referred to in

clause (vi) shall make an application in the prescribed

form and manner to the Principal Commissioner or

Commissioner, for grant of approval,—

(i) where the institution or fund is approved under

clause (vi) [as it stood immediately before its

amendment by the Taxation and Other Laws

(Relaxation and Amendment of Certain

15 ITA.Nos.1345 & 1369/PUN./2023 Provisions) Act, 2020], within three months from

the 1st day of April, 2021;

(ii) where the institution or fund is approved and the

period of such approval is due to expire, at least

six months prior to expiry of the said period;

(iii) where the institution or fund has been

provisionally approved, at least six months prior

to expiry of the period of the provisional approval

or within six months of commencement of its

activities, whichever is earlier; (emphasis

supplied)

72[(iv) in any other case, where activities of the institution or

fund have––

(A) not commenced, at least one month prior to the

commencement of the previous year relevant to the

assessment year from which the said approval is

sought;

(B) commenced and where no income or part thereof

of the said institution or fund has been excluded

from the total income on account of applicability of

sub-clause (iv) or sub-clause (v) or sub-clause (vi) or

sub-clause (via) of clause (23C) of section

10 or section 11 or section 12 for any previous

year ending on or before the date of such

16 ITA.Nos.1345 & 1369/PUN./2023 application, at any time after the commencement of

such activities:]

Provided further that the Principal Commissioner or

Commissioner, on receipt of an application made under the

first proviso, shall,—

(i) where the application is made under clause (i) of the

said proviso, pass an order in writing granting it

approval for a period of five years;

(ii) where the application is made under clause (ii) or

clause (iii) [or sub-clause (B) of clause (iv)] of the said

proviso,—

(a) call for such documents or information from it or

make such inquiries as he thinks necessary in

order to satisfy himself about—

(A) the genuineness of activities of such institution

or fund; and

(B) the fulfilment of all the conditions laid down in

clauses (i) to (v);

(b) after satisfying himself about the genuineness of

activities under item (A), and the fulfilment of all

the conditions under item (B), of sub-clause (a),—

(A) pass an order in writing granting it approval for

a period of five years; or

17 ITA.Nos.1345 & 1369/PUN./2023 [(B) if he is not so satisfied, pass an order in writing,–– (I) in a case referred to in clause (ii) or clause (iii) of the first proviso, rejecting such application and cancelling its approval; or (II) in a case referred to in sub-clause (B) of clause (iv) of the first proviso, rejecting such application, after affording it a reasonable opportunity of being heard;] (iii) …….

case of the Assessee held that the Activities of the Assessee had

commenced in 18/01/2014, hence the assessee was liable to make

application for Approval u/s 80G of the Act to file the present

application within six months from the date of provisional

approval i.e. on or before 08.01.2022 whereas the present

application filed by the assessee on 08.04.2023 i.e.beyond the time

limit allowed under clause (iii) of first proviso to section 80G(5) of

the Income Tax Act, 1961, the ld.CIT(E) held it to be time barred.

New Procedure for registration:

Act, 2020. There was amendment in the registration procedure by

18 ITA.Nos.1345 & 1369/PUN./2023 Finance Act, 2020. For the first time the Finance Act, 2020

introduced the concept of “Provisional Approval”. Also due to the

amendment, all the existing Trust/Institutions which were already

having registration u/s12AA or 80G(5) were asked to re-apply for

registration as per the amendment brought in 2020 and a date was

specified before which all those Trust/Institutions already having

Registration was required to make a fresh application as per the

amendment procedure.

provisions. To interpret the provisions, we shall refer to the Budget

Speech of the Hon’ble Finance Minister.

7.1 The Hon’ble Supreme Court in the case of K P Varghese Vs.

ITO [1981] 131 ITR 597 (SC) has observed as under regarding

use of Speech of a Minister as a tool in interpretation:

Quote , “ Now it is true that the speeches made by the Members of the Legislature on the floor of the House when a Bill for enacting a statutory provision is being debated are inadmissible for the purpose of interpreting the statutory provision but the speech made by the mover of the Bill explaining the reason for the introduction of the Bill can certainly be referred to for the purpose of ascertaining the mischief sought to be remedied by the legislation and the object and purpose for which the legislation is enacted. This is an accord with the recent trend in juristic thought not only in western countries but also in India that interpretation of a statute being an exercise in the ascertainment of meaning, everything which is logically relevant

19 ITA.Nos.1345 & 1369/PUN./2023 should be admissible. In fact there are at least three decisions of this Court, one in Sole Trustee, Loka Shikshana Trust v. CIT [1975] 101 ITR 234, the other in Indian Chamber of Commerce v. CIT [1975] 101 ITR 796 and the third in Addl. CIT v. Surat Art Silk Cloth Manufacturers Association [1980] 121 ITR l/[1980] 2 Taxman 501, where the speech made by the Finance Minister, while introducing the exclusionary clause in section 2(15) of the Act, was relied upon by the Court for the purpose of ascertaining what was the reason for introducing that clause.”

7.2 The Hon’ble Supreme Court has approved use of the Hon’ble

Minister’s speech as tool of interpretation to understand the intent

of the Statute.

Extract of relevant part of Speech of Hon’ble Finance Minister:

said as under :

Quote “In order to simplify the compliance for the new and existing charity institutions, I propose to make the process of registration completely electronic under which a unique registration number (URN) shall be issued to all new and existing charity institutions. Further, to facilitate the registration of the new charity institution which is yet to start their charitable activities, I propose to allow them provisional registration for three years. ” Unquote.

Finance Bill 2020 : “(vi) an entity making fresh application for approval under clause (23C) of section 10, for registration under section 12AA, for approval under section 80G shall be provisionally approved or registered for three years on the basis of application without detailed enquiry even in the cases where activities of the entity are yet to begin and then it

20 ITA.Nos.1345 & 1369/PUN./2023 has to apply again for approval or registration which, if granted, shall be valid from the date of such provisional registration. The application of registration subsequent to provisional registration should be at least six months prior to expiry of provisional registration or within six months of start of activities, whichever is earlier”

procedure of registration of Charitable Trusts/Institutions. The

amendment made to simplify a procedure cannot be interpreted in

a way that it causes prejudice to the Trust/institutions.

Finance Minister 2020 and the Memorandum of Finance Bill, 2020

together, it becomes clear that the concept of Provisional

registration was mainly to facilitate the registration of newly

formed Trust/Institutions which have not yet begun the activities.

The parliament in its wisdom has decided to differentiate between

the Trust which were newly formed and the trust which were

already doing charitable activities. In the second category of

cases, there are again two possibilities, one trust was already

doing charitable activities and was already having Registration u/s

12AA or 80G(5) of the Act, such trust were directed to re-apply for registration under new procedure on or before 30th August, 2020

but due to Covid-19 this date was subsequently extended. There is

Second category of trust/institutions which were already doing

21 ITA.Nos.1345 & 1369/PUN./2023 Charitable Activities but had never applied for registration

u/s.80G(5) of the Act. It is not mandatory that every charitable

trust/institution has to apply for registration u/s.80G(5) of the Act.

However, there is no bar in the Act that such trust or institutions

cannot apply for registration u/s.80G in the new procedure. In

these kinds of cases, the Trust/Institute though doing charitable

activity may apply first for the ‘Provisional Registration ‘under the

Act. After getting the Provisional Registration the Trust/Institution

have to apply for Regular Registration. These kind of

Trust/Institutes will fall under sub clause (iii) of the Proviso to

Section 80G(5) of the Act, since they have obtained Provisional

registration.

10.1 In this background, we need to read the sub-clause (iii)

of the Proviso to Section 80G(5) of the Act. For ready reference it

is again reproduced here under :

“iii) where the institution or fund has been provisionally approved, at least six months prior to expiry of the period of the provisional approval or within six months of commencement of its activities, whichever is earlier”

10.2 The sub-clause says that the Institution which have

provisional registration have to apply at-least six months prior to

expiry of the provisional registration or within Six months of

commencement of activities, whichever is earlier.

22 ITA.Nos.1345 & 1369/PUN./2023 10.3 In continuation of this when we read the ‘sub clause iii of

Proviso’ of section 80G(5), which we have already reproduced

above, it is clear that the intention of parliament in putting the

word “or within six months of commencement of its activities,

whichever is earlier” is in the context of the newly formed

Trust/institutions. For the existing Trust/Institution, the time limit

for applying for Regular Registration is within six months of expiry

of Provisional registration if they are applying under sub clause

(iii) of the Proviso to Section 80G(5) of the Act. This will be the

harmonious interpretation.

a trust which was formed in the year 2000, performed charitable

activities since 2000, but did not applied for registration u/s.80G,

the said trust will never be able to apply for registration now. This

in our opinion is not the intention of the legislation. This

interpretation leads to absurd situation.

11.1 In this context, we will like to refer to observations of the

Hon’ble Supreme Court in the case of K P Varghase(supra), where

in Hon’ble Supreme Court observed as under :

Quote, “It is a well-recognised rule of construction that a statutory provision must be so construed, if possible, that absurdity and mischief may be avoided. There are many situations where the

23 ITA.Nos.1345 & 1369/PUN./2023 construction suggested on behalf of the revenue would lead to a wholly unreasonable result which could never have been intended by the Legislature. Take, for example, a case where A agrees to sell his property to B for a certain price and before the sale is completed pursuant to the agreement and it is quite well known that sometimes the completion of the sale may take place even a couple of years after the date of the agreement - the market price shoots up with the result that the market price prevailing on the date of the sale exceeds the agreed price at which the property is sold by more than 15 per cent of such agreed price. This is not at all an uncommon case in an economy of rising prices and in fact we would find in a large number of cases where the sale is completed more than a year or two after the date of the agreement that the market price prevailing on the date of the sale is very much more than the price at which the property is sold under the agreement. Can it be contended with any degree of fairness and justice that in such cases, where there is clearly no understatement of consideration in respect of the transfer and the transaction is perfectly honest and bona fide and, in fact, in fulfilment of a contractual obligation, the asses-see who has sold the property should be liable to pay tax on capital gains which have not accrued or arisen to him. It would indeed be most harsh and inequitable to tax the assessee on income which has neither arisen to him nor is received by him, merely because he has carried out the contractual obligation undertaken by him. It is difficult to conceive of any rational reason why the Legislature should have thought it fit to impose liability to tax on an assessee who is bound by law to carry out his contractual obligation to sell the property at the agreed price and honestly carries out such contractual obligation. It would indeed be strange if obedience to the

24 ITA.Nos.1345 & 1369/PUN./2023 law should attract the levy of tax on income which has neither arisen to the assessee nor has been received by him. If we may take another illustration, let us consider a case where A sells his property to B with a stipulation that after sometime, which may be a couple of years or more, he shall resell the property to A for the same price. Could it be contended in such a case that when B transfers the property to A for the same price at which he originally purchased it, he should be liable to pay tax on the basis as if he has received the market value of the property as on the date of resale, if, in the mean-while, the market price has shot up and exceeds the agreed price by more than 15 per cent. Many other similar situations can be contemplated where it would be absurd and unreasonable to apply section 52(2) according to its strict literal construction. We must, therefore, eschew literalness in the interpretation of section 52(2) and try to arrive at an interpretation which avoids this absurdity and mischief and makes the provision rational and sensible, unless of course, our hands are tied and we cannot find any escape from the tyranny of the literal interpretation. It is now a well-settled rule of construction that where the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the Legislature, the Court may modify the language used by the Legislature or even 'do some violence" to it, so as to achieve the obvious intention of the Legislature and produce a rational construction -” Unquote.

11.2 Thus, as observed by the Hon’ble Supreme Court, that the

statutory provision shall be interpreted in such a way to avoid

absurdity. In this case to avoid the absurdity as discussed by us in

25 ITA.Nos.1345 & 1369/PUN./2023 earlier paragraph, we are of the opinion that the words, “within

six months of commencement of its activities” has to be interpreted

that it applies for those trusts/institutions which have not started

charitable activities at the time of obtaining Provisional

registration, and not for those trust/institutions which have already

started charitable activities before obtaining Provisional

Registration. We derive the strength from the Speech of the

Hon’ble Finance Minister and the Memorandum of Finance Bill,

2020.

11.3 Therefore, in these facts and circumstances of the case,

we hold that the Assessee Trust had applied for registration within

the time allowed under the Act. Hence, the application of the

assessee is valid and maintainable.

26, and it can be cancelled by the ld.CIT(E) only on the specific

violations by the assessee. However, in this case the ld.CIT(E) has

not mentioned about any violation by the Assessee.Therefore, even

on this ground the rejection is not sustainable.

Assessee fulfils all other conditions mentioned in the section as he

rejected it on technical ground. Therefore, in these facts and

26 ITA.Nos.1345 & 1369/PUN./2023 circumstances we hold that the Assessee had made the application

in form 10AB within the prescribed time limit and hence it is valid

application. Therefore, we direct the ld.CIT(E) to treat the

application has filed within statutory time and verify assessee’s

eligibility as per the Act. The ld.CIT(E) shall grant opportunity to

the assessee. Assessee shall be at liberty to file all the necessary

documents before the ld.CIT(E).

statistical purpose. Since we have set aside to Ld.CIT(E), we do

not intend to adjudicate each ground separately.”

27 ITA.Nos.1345 & 1369/PUN./2023 Order pronounced in the open Court on 07.05.2024.

Sd/- Sd/- [RAMA KANTA PANDA] [SATBEER SINGH GODARA] VICE PRESIDENT JUDICIAL MEMBER

Pune, Dated 07th May, 2024

VBP/-

Copy to

//By Order//

//True Copy //

Sr. Private Secretary, ITAT, Pune Benches, Pune.