IT : Approval under section 80G is also permissible to a company registered under section 25 of Companies Act whose director is Foreign National
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[2013] 38 taxmann.com 323 (Mumbai - Trib.)
IN THE ITAT MUMBAI BENCH 'G'
GIA India
v.
Director of Income-tax (Exemption)*
RAJENDRA SINGH, ACCOUNTANT MEMBER
AND VIJAY PAL RAO, JUDICIAL MEMBER
AND VIJAY PAL RAO, JUDICIAL MEMBER
IT APPEAL NO. 3921 (MUM.) OF 2010
SEPTEMBER 27, 2013
Section 80G, read with section 12A, of the Income-tax Act, 1961 - Deductions - Donation to certain funds, charitable institutions, etc. [Approval under sub-section (5)] - Whether there is no such condition or prohibition in section 80G that a director of a company registered under section 25 of Companies Act will not be a Foreign National - Held, yes - Whether defect in signing/verification of application for renewal of approval is a curable defect - Held, yes - Assessee was a company incorporated in India and had obtained licence under section 25 of Companies Act, 1956 as an educational institution existing for charitable purpose and not for purpose of profit - Assessee was also granted registration under section 80G as well as under section 12A and approval under section 80G was renewed on two occasions - However, Director (Exemption) had rejected assessee's application for renewal of approval granted under section 80G on grounds that directors of assessee company being Foreign Nationals, could not perform work of trustees of a charitable institution in India under Indian Trust Act and that application for renewal was verified by incompetent person - Whether denial of approval was permissible - Held, no [Paras 6 & 7] [In favour of assessee]
FACTS
| ■ | The assessee was a company incorporated under section 25 of Companies Act, 1956 as an educational institution existing for charitable purpose and not for the purpose of profit. It was also registered under section 12AA as well as section 80G. The assessee filed an application for renewal of approval granted under section 80G. | |
| ■ | However, the Director (Exemption) rejected said application on two grounds that two of the directors of the assessee company were foreign Nationals and therefore, such persons were not allow to perform work of trustees of a charitable institution in India and that application for renewal was verified and signed by incompetent person. | |
| ■ | On appeal: |
HELD
| ■ | The assessee was initially granted approval under section 80G(5)(vi) on 27-12-2004 which was valid up to 31-3-2006. The approval under section 80G was renewed up to 31-3-2009 vide order dated 23-11-2006. The Director (Exemption) has refused the further renewal mainly on the ground that two of the directors of the assessee company were foreign nationals and, therefore, such persons were not allow to perform work of trustee of a charitable institution in India. The Director's findings are guided by the rules prescribed under Indian Trust Act. Another objection of the Director (Exemption) was technical one as the application was verified and signed by incompetent person. It is pertinent to note that the assessee at the relevant point of time was having three directors. | |
| ■ | The application for renewal of approval under section 80G(5)(vi) was though signed by the Chartered Accountant of the assessee however, the form 10G annexed to the formal application has been verified and signed by one of the Directors of the assessee. When the application under section 80G has been duly verified and signed by the authorised persons who was also director of the assessee at the relevant point of time then there was no substance in the technical objection raised by the Director (Exemption). Moreover, the defect in signing/verification of the application for renewal of approval is a curable defect which could have been rectified if the competent authority thinks so. The view of the Director (Exemption) that the defect is not curable is against the settled principle of law as the DIT has not granted any opportunity to the assessee to either rectify or to explain the so called defect, if any, in the application. Therefore, the said technical objection is not sustainable. | |
| ■ | As regards the objection of Foreign National being the directors of the assessee, it is to be noted that there is no such requirement or condition under section 80G(5) that the institution or fund should not have any director of Foreign National. Section 80G(5)(v) stipulates the conditions for eligibility to the donations for deduction. [Para 6] | |
| ■ | It is clear from clause (v) of sub-section (5) of section 80G that inter alia the institution registered under section 25 of Companies Act, 1956 is eligible for approval under section 80G(5)(vi) in relation to donations made after 31-3-1992. Thus, under the provisions of section 80G(5) there is no such condition or prohibition that a director of a company granted approval under section 25 of the Companies Act shall not be a Foreign National. Even otherwise the trustee is the assessee company and not the directors; therefore when the approval under section 80G(5)(vi) was already granted twice and there is no subsequent change in the facts and circumstances then the refusal of the renewal of the approval by the Director (Exemption) is not based on any legal provisions of law in force. [Para 7] | |
| ■ | Thus, it is clear that the authorities were fully satisfied that the activities of the assessee are for charitable purpose while granting the registration under section 25 of the Companies Act and under section 12A as well as section 80G. Therefore, in the facts and circumstances of the case when no such objection was raised at the time of granting the earlier registration not once but at four occasions and under different provisions of Income-tax Act as well as under Companies Act, then the objections raised by the Director (Exemption) are not sustainable. [Para 8] |
CASES REFERRED TO
Indo American Society v. Asstt. DIT(Exemption) [2005] 96 ITD 61 (Mum.) (para 3), CIT v. Rajneesh Foundation [2006] 280 ITR 553/[2005] 148 Taxman 396 (Bom.) (para 3) and Grameen Initiative for Women v. DIT(E) [IT Appeal No. 1937(M) of 2009, dated 3-5-2011] (para 3).
H.P. Ranina and Statira Ranina for the Appellant. K.C.P. Patnaik for the Respondent.
ORDER
Vijay Pal Rao, Judicial Member - This appeal by the assessee is directed against the order dated 9.12.2009 of DIT (Exemption), Mumbai passed u/s 80G of the Income Tax Act.
2. The assessee has raised various grounds in this appeal however, the only issue arises for our consideration and adjudication is "whether in the facts and circumstances of the case the DIT(Exemption) is justified in refusing the renewal/registration u/s 80G to the assessee when the registration u/s 80G as well as u/s 12A was already granted". The assessee is a company incorporated in India and has obtained licence u/s 25 of companies Act, 1956 as an educational institution existing for charitable purpose and not for the purpose of profit. The assessee was also granted registration/approval u/s 80G(5)(vi) of the Income Tax Act vide order dated 27.12.2004 which was renewed up to 31.3.2009 vide order dated 23.11.2006. The assessee filed an application dated 20.3.2009 which was received in the office of DIT on 24.3.2009 for renewal of approval granted u/s 80G(5)(vi). The DIT rejected the application for renewal of approval vide impugned order dated 9.12.2009.
3. Before us the Ld. AR of the assessee has submitted that the DIT has not disputed the objects of the assessee being chargeable and this fact is also evident from the registration granted u/s 12A of the Income Tax Act as well as u/s 80G initially vide order dated 27.12.2004 which was renewed by order dated 23.11.2006. Thus, the Ld. AR has submitted that despite accepting the objects of the assessee as chargeable in nature the DIT refused to grant the renewal of approval u/s 80G only on the ground that some of the directors of the assessee are Foreign Nationals. The DIT (Exemption) has questioned the states of the assessee on the ground that the Foreign Nationals are not allowed to perform work of a trustee as per the provisions of Indian Trust Act. The Ld. AR has urged that the assessee is not registered under the Indian Trust Act but is a company registered u/s 25 of the Companies Act, 1956 which is permissible u/s 80G(5)(v). He has referred the clause (v) of section 80G(5) and submitted that if any fund or institution is established for chargeable purpose and fulfil the condition that the institution registered u/s 25 of Companies Act, 1956 then the donation to such institution is eligible for deduction u/s 80G.
Thus, the Ld. AR has argued that the assessee fulfil the condition as provided u/s 80G(5)(v) of the Income Tax Act and therefore, eligible for grant of renewal of approval. He has pointed out that when the assessee is a company and registered under the Companies Act then domicile of the director of the assessee company is not relevant. He has relied upon the following decision:
| ♦ | Indo American Society v. Asstt. DIT (Exemption) [2005] 96 ITD 61 (Mum.) | |
| ♦ | CIT v. Rajneesh Foundation [2006] 280 ITR 553/[2005] 148 Taxman 396 (Bom.) | |
| ♦ | Grameen Initiative for Women v. DIT(E), Mumbai [IT Appeal No. 1937(M) of 2009, dated 3.5.2011] |
4. On the other hand, the Ld. DR has relied upon the impugned order of the DIT and submitted that the assessee having the directors of Foreign Domicile/Nationals which violates the rule prescribed under Indian Trust Act. Further the DIT has held that the Foreign Nationals are not competent to make the application for granting approval u/s 80G.
5. We have considered the rival submissions and carefully perused the relevant material on record. The assessee company is incorporated and registered in India u/s 25 of Companies Act 1956 as an educational institution with the objects of chargeable purpose for imparting education and not for the purpose of profit. It is not disputed that the assessee is registered u/s 12A(a) of the Income Tax Act and therefore, the objects of the assessee are found to be chargeable in nature. We further note that the assessee was initially granting approval u/s 80G(5)(vi) of the Act on 27.12.2004 which was valid up to 31.3.2006. The approval u/s 80G was renewed up to 31.3.2009 vide order dated 23.11.2006. The DIT has refused the further renewal mainly on the ground that two of the directors of the assessee company are Foreign Nationals and therefore, such persons are not allow to performing work of trustee of a chargeable institution in India. The DIT's findings are guided by the rules prescribed under Indian Trust Act. Another objection of the DIT was technical one regarding the validity of the application being verified and signed by in competent person. It is pertinent to note that the assessee at the relevant point of time was having three directors namely:
Ms. Donna Baker - (appointed as Director on March 9, 2004)
Ms. Nirupa Bhatt - (appointed as Director on February 11, 2009)
Mr. David Tearle - (appointed as Director on September 17, 2009)
6. The application for renewal of approval u/s 80G(5)(vi) was though signed by the Chartered Accountant of the assessee however, the form 10G annexed to the formal application has been verified and signed by one Nirupa Bhatt, Director of the assessee. When the application under 10G has been duly verified and signed by the authorised persons who was also director of the assessee at the relevant point of time then we do not find any substance in the technical objection raised by the DIT. Moreover, the defect in signing/verification of the application is a curable defect which could have been rectified if the competent authority thinks so. The view of the DIT that the defect is not curable is against the settled principle of law as the DIT has not granted any opportunity to the assessee to either rectified or to explain the so called defect, if any, in the application. Therefore, the said technical objection is not sustainable. As regard the objection of Foreign National being the directors of the assessee, it is to be noted that there is no such requirement or condition u/s 80G(5) that the institution or found should not have any director of Foreign National. Section 80G(5)(v) stipulates the conditions for eligibility to the donations for deduction 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 fulfils the following conditions, namely:—
| (i) to (iv)** | ** | ** |
(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 (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 finance wholly or in part by the Government or a local authority."
7. It is clear from clause (v) of sub-section 5 of section 80G that inter alia the institution registered u/s 25 of Companies Act 1956 is eligible for approval u/s 80G(5)(vi) in relation to donations made after 31.3.1992. Thus under the provisions of section 80G(5) there is no such condition or prohibition of a director of a company granted approval u/s 25 of the Companies Act shall not be a Foreign National. Even otherwise the trustee is the assessee company and not the directors therefore, when the approval u/s 80G(5)(vi) was already granted twice and there is no subsequent change in the facts and circumstances then the refusal of the renewal of the approval by the DIT(Exemption) is not based on any legal provisions of law inforces. In the case ofRajneesh Foundation (supra) the Hon'ble Jurisdiction High Court has observed in para 25 and 26 as under:
"25. It is material to note that the respondent had also requested the Government to grant benefit of deduction under section 80G of the Income Tax Act for the donations made to the respondent by the donors. On that request, necessary inquiry was made by the Commissioner of Income Tax and after getting detailed reply and clarification as per the letter dated April 9, 2001 from the respondent, the Commissioner of Income Tax issued an order under rule 11AA dated July 22, 2003, whereby the donations made to the respondent are made allowable for the benefit of deduction under section 80G of the Income Tax Act in the hands of the donors for the period from April 1, 2001 to March 31, 2004. Again the same benefit was continued by an order dated September 17, 2004, with effect from April 1, 2004 to March 31, 2007. It means the donors, who make donations to the respondent trust, are also entitled to get benefit of deduction of the said donation from their income as per the provisions of section 80G for the purpose of the income tax. It clearly shows that the Government is fully satisfied that the activities of the respondent are for charitable purposes and, therefore, not only the respondent is registered under section 12A as the charitable trust and entitled to benefit of exemption under section 11, even the donors are also given the benefit under section 80G. Changes in the respondent trust took place with the amendment in 1989. The relevant assessment year 1991-92 is of the period after the said amendment. If on the basis of the said trust deed, the Government could give exemption under section 11 as also under section 80G by the subsequent orders, the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal were fully justified in holding that the respondent is entitled to get exemption under section 11 for the relevant assessment year.
26. In view of the above circumstances, we find that the objects of the respondent are charitable within the meaning of section 2(15) and the Income Tax Appellate Tribunal was right in holding that the respondent is entitled to exemption under section 11 of the Income Tax Act. In the result, we answer the substantial question of law in the affirmative and the appeal stands dismissed. No order as to cost."
8. Thus, It is clear that the authorities were fully satisfied that the activities of the assessee are for chargeable purpose while granting the registration u/s 25 of the Companies Act and u/s 12A as well section 80G of the Income Tax Act. Therefore, in the facts and circumstances of the case when no such objection was raised at the time of granting the earlier registration not once but at four occasions and under different provisions of Income Tax Act as well as under companies Act then the objections raised by the DIT are not sustainable. Accordingly, we set aside the impugned order and direct the DIT (Exemption) to grant approval/renewal u/s 80G(5)(vi) of the assessee.
9. In the result, the appeal of the assessee is allowed.
Regards
Prarthana Jalan
__._,_.___
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