Income Tax Appellate Tribunal - Jaipur
Barefoot College International, Ajmer vs Cit (Exemption), Jaipur on 11 May, 2017
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM
vk;dj vihy la-@ITA No. 795/JP/2016
fu/kZkj.k o"kZ@Assessment Year :
Barefoot College cuke The Commissioner of Income-tax
International, VPO- Vs. (Exemption), Jaipur.
Tilonia, Ajmer (Raj.)
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vihykFkhZ@Appellant izR;FkhZ@Respondent
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s Assessee by : Shri Sanjeev Jain (CA)
jktLo dh vksj ls@ Revenue by : Shri Vrinder Mehta (CIT)
lquokbZ dh rkjh[k@ Date of Hearing : 05/05/2017
mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 11/05/2017
vkns'k@ ORDER
PER: VIKRAM SINGH YADAV, A.M. This is an appeal filed by the assessee against the order of ld. CIT (Exemption), Jaipur dated 27.06.2016 passed u/s 80G(5)(vi) of the Income Tax Act, 1961 wherein the assessee has taken the following ground of appeal:-
"1 The Ld. CIT (Exemption) has erred in law as well as on facts of the case by rejecting application seeking exemption u/s 80G(5)(vi) of the I.T. Act, 1961."2 ITA No. 795/JP/2016
Barefoot College International, Ajmer Vs. CIT (E)
2. During the course of hearing, the Ld. AR submitted that the assessee is a company formed with charitable objects, registered u/s 8 of the Companies Act, 2013 (corresponding to Section 25 of the Companies Act, 1956). The ld. CIT (Exemption) has granted registration u/s 12AA (1)(b) of the Income Tax Act, 1961 to the assessee company. However approval u/s 80G(5)(vi) of the Income Tax Act, 1961 has been denied to the assessee company. In the order denying approval u/s 80G(5)(vi), the Ld. CIT (Exemption) has pointed out that the applicant primarily intends to carry out the activities outside India and the applicant has not submitted any approval u/s 11(1)(c). Further it is stated by the Ld. CIT (Exemption) that the applicant has simply collected funds and has not carried out any significant charitable activities. In view of this, the case does not seems to be fit for granting exemption u/s 80G.
2.1 It was submitted that the conclusion drawn by the ld. CIT(Exemption) is not correct and our reference was drawn to the provisions of Section 80G(5) of the Act which reads as under:
"(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 fulfills 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 3 ITA No. 795/JP/2016 Barefoot College International, Ajmer Vs. CIT (E) 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 purpose 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 purposes 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 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 (1of 1956), or is a University established by 4 ITA No. 795/JP/2016 Barefoot College International, Ajmer Vs. CIT (E) 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 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 Commission in accordance with the rules made in this behalf; and
(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 chartibale purposes for the previous year beginning on the 1st day of April, 2008 and ending 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."
2.2 It was submitted by the ld AR that a bare reading of the above provisions makes it clear that the fund or institution should be established in India for charitable purposes. Nowhere there is a the mention regarding the scope of activities to be carried out within India or outside India. It was accordingly submitted that the fact that the assessee intends to carry out some part of its activities outside India does not put a bar on it being approved u/s 80G(5)(vi).
5 ITA No. 795/JP/2016Barefoot College International, Ajmer Vs. CIT (E) 2.3 It was further submitted that another objection by the Ld. CIT (Exemption) that the assessee has not carried out any significant charitable activities also does not seem to have any merit. The section 80G nowhere prescribe that carrying out of activities is a pre-condition for approval. The assessee company has been formed for the charitable objects. It has already been registered u/s 12AA (1)(b) of the I.T. Act, 1961 and the donations that it would receive would not be liable to inclusion in its total income under the provisions of section 11 and 12 of the Act.
2.4 It was accordingly submitted that in view of the above submission, the assessee company fulfill all the conditions laid down for approval u/s 80G(5)(vi) of the I. T. Act, 1961 and the objections raised by the Ld. CIT (Exemption) are not relevant in the context of approval sought for. The necessary directions may accordingly been given to the Ld. CIT(Exemption) to grant approval u/s 80G(5)(vi) of the I.T. Act, 1961 to the assessee company.
3. We now refer to the relevant findings of the Ld. CIT(E) which are under challenge before us. The same are reproduced as under:-
"3. From the plain reading of section 80G(5) and rule 11AA, it becomes clear that activities carried on by the organization as well as maintenance of accounts are to be given due importance at the time of granting exemption u/s 80G(5). The trust has the following main object:-6 ITA No. 795/JP/2016
Barefoot College International, Ajmer Vs. CIT (E)
1. To encourage traditional and rural handicrafts skills as well as to reassess and provide support to those with talents and protect their partnership.
2. To help the artisans change the traditional designs for existing markets as well as to find new markets.
3. To protect the traditional crafts through banks and other financial support.
4. To make new and renewable technology accessible to the developing world through a partnership model of community engagement. To promote solar electrification and installation of solar plants.
5. To engage in Grass Roots, R&D, product development and testing within all renewable technologies applicable to the rural poor.
6. To promote commerce, arts, science, sports, education, research, social welfare, charity, renewable technology and protection of environment.
7. To rehabilitate victims of natural disaster, to assist physically and mentally disabled persons, old aged peoples, children, women, persons from economically weaker sections of the society, without any distinction of religion, caste and creed.
8. To achieve financial sustainability, viability, and self reliance through its own activities.
9. To reinvest any incidental surplus into growth and strengthening of its social and humanitarian projects, through itself or by transfer to any other nonprofit organization, institution, association, company, trust etc. situated in India or outside India.
10. No objects of the company will be carried out on commercial basis.
4. In light of above objects, the activities commenced by the applicant were examined. Therefore vide point No. 5 of letter No. 3777, dated 18.12.2015 applicant was asked to produce activity details carried out since its inception. In response to which AR of the applicant vide written reply dated 13.01.2016 stated that 7 ITA No. 795/JP/2016 Barefoot College International, Ajmer Vs. CIT (E) " the company has entered into a MOU with Digital Empowerment Foundation on dated 10.08.2015 with a focus to benefit the inaccessible people in the villages of India with wireless connectivity." It means that applicant only entered into MOU and activity to be started in future to fulfill its objects.
5. Further, the Clause No.-4 of Memorandum of Association reads as under:-
"4.The objects of the company extend to the whole of India and all under developed as well as developing countries, as identified by the United National Organization."
Thus the applicant intends to carry out the activities outside India. Further in the Income & Expenditure Account submitted during the proceedings for the F.Y. 2015-16, it is seen that the applicant has allotted funds of Rs. 26,35,440/- for solar work at Guatemala City and Rs. 51,94,250/- for solar work at Philippine. Thus, the applicant primarily intends to carry out the activities outside India. As per the provisions of the Act, the activities outside India cannot be carried out without obtaining prior approval from competent authority u/s 11(1)(c).
6. Thus, it can be seen the applicant his simply collected funds and has not carried out any significant charitable activities. In view of this, the case does not seems to be fit for granting exemption u/s 80G at this stage."
4. We have heard the rival contentions and perused the material available on record. Regarding the first contention of the ld. AR, it was submitted that the requirement of Section 80G is that the institution should be established in India for a charitable purpose and it nowhere mentions that the scope of activities to be carried out within India or 8 ITA No. 795/JP/2016 Barefoot College International, Ajmer Vs. CIT (E) outside India. As per the ld. CIT(E), the assessee has alloted funds of Rs. 26,35,440/- for solar work at Guatemala City and Rs. 51,94,250/- for solar work at Philippine and on basis of these facts, it was held that the applicant primarily intends to carry out the activities outside India and as per the provisions of section 11(1)(c) of the Act, the activities outside India cannot be carried out without obtaining prior approval from the competent authority and there is no approval which has been submitted by the applicant in this regard.
4.1 On perusal of provisions as contained in section 80G(5)(vi), it provides that it applies to donations to any institutions or funds referred to section 2(a)(iv) only if it is established in India for a charitable purposes and it fulfills certain conditions. The first condition which has been stipulated is that where the institution or fund derives any income, such income would not be liable for inclusion in its total income under the provisions of sections 11 and 12 of the Act.
4.2 If we look at the provisions of Section 11 of the Act, it provides that:
"(1) subject to the provisions of sections 60 to 63, the following income shall not be included in the total income of the previous year of the persons in receipt of the income which includes the following:
(a) ....
(b) ....
(c) Income from property held under trust -9 ITA No. 795/JP/2016
Barefoot College International, Ajmer Vs. CIT (E)
(i) Created on or after the 1st day of April, 1952, for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India, and
(ii) for charitable or religious purposes, created before the 1st day of April, 1952 to the extent to which such income is applied to such purposes outside India.
Provided that the Board, by general or special order, has directed in either case that it shall not be included in the total income of the person in receipt of such income."
4.2 A close reading of the above provisions, namely 11(1)(c)(i) which is applicable in the instant case, it is clear that income derived from property held under trust for a charitable purpose which tends to promote international welfare in which India is interested, to the extent to which such income is applied to such purposes outside India shall not be included in total income of the person in receipt of such income where the CBDT by general or special order so directs. 4.3 Further, in the facts of the present case, the applicability of section 11(1)(c)(i) has infact been made part of and has been stated as one of the conditions subject to which the approval has been granted under section 12AA(1)(b) of the Act wherein it is stated that " As per clause NO. 4 of the MOA, the applicant company intends to work outside India, therefore exemption under section 11 &12 will be allowed subject to approval u/s 11(1)(c) from the competent/prescribed authority as per the Income tax Act, 1961."
10 ITA No. 795/JP/2016Barefoot College International, Ajmer Vs. CIT (E) 4.4 Neither any contentions has been raised by the ld AR before this Bench nor there is any material available on record to suggest that the assessee has contested the applicability of section 11(1)(c) in its case or for that matter, the grant of the approval under section 12AA subject to fulfillment of such condition of seeking the necessary approval under section 11(1)(c) of the Act. Further, the facts as noted by the ld CIT(E) that the assessee has already alloted funds of Rs. 26,35,440/- for solar work at Guatemala City and Rs. 51,94,250/- for solar work at Philippine, it shows clearly not just the intent but actual conduct of the assessee where it likes to carry out activities outside of India. Therefore, the applicability of section 11(1)(c) remains undisputed before us.
4.5 Now, the question that arises is whether the approval under section 80G can be made subject to approval under section 11(1)(c) of the Act. As noted above, the first condition which has been stipulated and is to be fulfilled by the assessee under section 80G(v) is that 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 of the Act. In the instant case, the activities of the institution include activities intended to be carried outside of India, thus its income would not be liable to inclusion in its total income under the provisions of sections 11 and 12 of the Act provided it has the necessary approval obtained under section 11(1)(c) of the Act besides other requirements as specified under the provisions of section 11 and 12 of the Act.
11 ITA No. 795/JP/2016Barefoot College International, Ajmer Vs. CIT (E) 4.6 Thus, on combined reading of section 80G(5)(vi) and section 11(1)(c) of the Act, the approval under section 80G is subject to grant of approval under section 11(1)(c) of the Act. In the instant case, since such approval is not in place, the requirement of section 80G(5)(vi) cannot be said to be satisfied. Therefore, the issue is not that the scope of activities should be restricted to India and it cannot be carried out outside of India. The issue is limited to carrying out the activities outside India after seeking approval from competent authority u/s 11(1)(c) of the Act. The ld CIT(E) was therefore correct in denying the approval under section 80(G)(vi) in absence of approval of competent authority under section 11(1)(c) of the Act.
4.4 Now coming to the second contention of the ld AR where he has objected to findings of the Ld. CIT (Exemption) that the assessee has simply collected funds and has not carried out any significant charitable activities and in view of that, the matter doesn't seem fit for grant of approval under section 80G of the Act. It was submitted by the ld AR that section 80G nowhere prescribe that carrying out of activities is a pre-condition for grant of approval and so long as it has fulfilled the prescribed conditions, the approval under section 80G should not be denied.
4.5 On perusal of material on record, it is observed that the assessee has been incorporated and registered under Section 8 of the Companies Act, 2013 on 20 July 2015. Thereafter, on 15.12.2015, the assessee moved an application before the ld. CIT (E) for grant of registration u/s 12AA(1)(b) of the Act as well as an application seeking approval u/s 12 ITA No. 795/JP/2016 Barefoot College International, Ajmer Vs. CIT (E) 80G(5)(vi) of the Act. Interestingly, on the same date i.e, 27.06.2016 when the approval under section 12AA(1)(b) was granted by the ld CIT(E), the application under u/s 80G(5)(vi) was rejected.
4.6 On perusal of Section 80G(5) as well as Rule 11AA, what is required to be seen is whether the institution/fund has been established in India for a charitable purpose or not. Secondly, it lays down certain additional conditions under clause (i) to clause (v) which are required to be fulfilled. Rule 11AA provides that where the CIT is satisfied that one or more of the conditions specified in clause (i) to clause (v) of section 80G(5) are not fulfilled, he shall reject the application for approval after recording his reasons for such rejection. In the instant case, the appellant has been duly registered under section 12AA which shows beyond any doubt that ld CIT has already verified the genuineness of the objects and its activities are not doubted by the CIT. Hence, having granted registration u/s 12AA, the first condition regarding establishment of institution for charitable purposes is fulfilled. Regarding satisfaction of additional conditions specified in clause (i) to clause (v) of section 80G(5), there is no dispute as apparent from the order of the ld CIT except the non-fulfilment of the condition relating to carrying out activities outside of India in absence of approval under section 11(1)(c) of the Act which we have already discussed above.
4.7 Regarding the activities carried out by the appellant towards achievement of its charitable objectives, the ld CIT(E) has stated that the assessee has entered into memorandum of understanding with Digital Empowerment Foundation on dated 10.08.2015 with a focus to 13 ITA No. 795/JP/2016 Barefoot College International, Ajmer Vs. CIT (E) benefit the inaccessible people in the villages of India with wireless connectivity." Further, the ld CIT(E) noted that the assessee has alloted funds of Rs. 26,35,440/- for solar work at Guatemala City and Rs. 51,94,250/- for solar work at Philippine. The ld CIT(E) therefore acknowledges all these facts and the only reason stated to be non carrying out any significant activity by the assessee. In our view, given the fact that the assessee has only been incorporated around an year back and there are actions which are taken by the assessee towards achieving its charitable objectives which are not doubted, the approval under section 80G cannot be denied solely on this ground and to this extent, we do not concur with the ld CIT(E).
4.8 In light of above discussions, the fact remains that the assessee has not obtained the approval under section 11(1)(c) of the Act and in absence of the same, the application under section 80G(5)(vi) has rightly been rejected by the ld CIT(E). The appeal of the assessee thus stands dismissed.
4.9 Before parting, it is appropriate to add that the assessee would be at liberty, if so advised, to approach the ld. CIT(E) for seeking approval under Section 80G(5)(vi) once it has obtained the approval from competent authority under section 11(1)(c) of the Act.
Order pronounced in the open court on 11/05/2017 Sd/- Sd/-
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(Kul Bharat) (Vikram Singh Yadav)
U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member
14 ITA No. 795/JP/2016
Barefoot College International, Ajmer Vs. CIT (E) Tk;iqj@Jaipur fnukad@Dated:- 11/05/2017.
*Santosh.
vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- Barefoot College International VPO- Tilonia, Ajmer (Raj.)
2. izR;FkhZ@ The Respondent- The Commissioner of Income-tax (Exemption), Jaipur.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr@ CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur.
6. xkMZ QkbZy@ Guard File {ITA No. 795/JP/2016} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar