Vikram Singh Yadav, Accountant Member - This is an appeal filed by the assessee against the order of CIT (Exemptions), Jaipur dated 16.07.2015 wherein the assessee has taken the following ground of appeal:
The ld. Commissioner of Income Tax (Exem.) has erred on facts and in law in rejecting the application of assessee seeking exemption u/s 80G(5) of the IT Act, 1961. He has further erred in holding that assessee has not started the activities as per the object.
2. Briefly the facts of the case are that the assessee was incorporated on 25.05.2010 under the Companies Act, 1956 in the name of "Hemdha Medi Resources Pvt. Ltd.' It was given a license u/s 25 of the companies Act, 1956 on 13.10.2012 by the Registrar of Companies, Rajasthan. Thereafter , its name was changed to 'Hemdha Medi Resources' and a fresh certificate of incorporation consequent upon the change of name was issued on 29.10.2012 by the Registrar of companies, Rajasthan. The main object of the company for which it is incorporated is reproduced as under:
2.1 The Ld AR submitted that an application for registration u/s 12A and for grant of approval u/s 80G(5)(vi) of the IT Act, 1961 was initially filed on 02.09.2013. However, both the applications were rejected by the CIT vide order dated 28.03.2014. The application for registration u/s 12A was rejected on the ground that the assessee was not carrying out any charitable activity and the application for grant of approval u/s 80G(5)(vi) was rejected on the ground that as assessee is not registered u/s 12AA, it is not eligible for approval u/s 80G(5)(vi).
2.2 The assessee, thereafter again applied for registration u/s 12A and approval u/s 80G(5) on 25.06.2014. Registration u/s 12AA was granted to the assessee vide letter dated 14.11.2014. However, the application for grant of approval u/s 80G(5)(vi) was rejected on the ground that registration certificate u/s 12AA was not enclosed with the application.
2.3 The assessee, therefore, vide letter dated 05.10.2015 again filed an application for grant of approval u/s 80G(5)(vi) alongwith form No. 10G registration certificate dated 14.11.2014 u/s 12AA, notes on activities of the institution, copy of PAN card, copy of audited financial statement alongwith return of income preceding three years and memorandum and article of association.
2.4 The CIT issued letter dated 07.01.2015 requiring the assessee to furnish certain information/documents which was furnished by the assessee vide letter dated 18.02.2015 filed on 01.06.2015. Again vide letter dated 19.06.2015 assessee submitted the status of working and activities done by it.
2.5 The CIT by perusing sec. 80G(5) r.w.r. 11AA held that at the time of grant of exemption u/s 80G(5), due important has to be given to the activities carried out by the organization and maintenance of accounts. However, no activities has been started by the assessee as per the objects and only capital expenditure like acquisition of land, conversion of land, appointment of architect, soil testing etc. is done and in a period of more than five years, assessee could not carry out any activity in accordance with the objects of the company. Accordingly, the CIT rejected the application of assessee for grant of exemption u/s 80G(5) of the IT Act, 1961.
2.6 The ld. AR has submitted that Rule 11 AA of the IT Rules, 1962 provides that the application for approval of any institution or trust u/s 80G(5)(vi) of the IT Act, 1961 shall be in Form No. 10G and be accompanied by any of registration certificate u/s 12A, notes on the activities of the institution and copy of accounts of the institution of last three years. In the present case, all these requirements are fulfilled. The CIT has also accepted that assessee has taken steps for implementation of its objects in as much as it has acquired the land, converted the land for institutional use for setting up the hospital project, appointed the architect., carried out soil testing etc. All these activities are towards the object of the trust. Therefore, the observation of CIT that no activity has been started by the assessee/looking to the insignificant nature of the activities, the case does not seems to be fit for granting exemption u/s 80G at this stage is incorrect and also contradictory to each other.
It is submitted that the earlier occasion, approval u/s 80G was not allowed for the reason that the application is not accompanies by registration certificate u/s 12AA. The assessee with the present application has enclosed registration certificate u/s 12AA dated 14.11.2014. Thus when assessee has satisfied all the conditions for grant of approval u/s 80G, the order passed by CIT refusing such approval only on surmises and conjectures sis bad in law.
Otherwise, also once assessee has taken the steps for establishment of the hospital and medical college, it cannot be said that assessee has not yet commenced any activity. Further, the genuineness of the objects and its activities are not doubted by the CIT. Hence, having granted registration u/s 12AA, there is no reason not to grant approval u/s 80G. Reliance in this connection is placed in case of Hardayal Charitable & Educational Trust v. CIT [2013] 355 ITR 534/214 Taxman 655/32 taxmann.com 341 (All.).
2.7 The ld. CIT(Exempt.) while rejecting the appellant's application under section 80G(5) has given his findings as under:—
"On verification of the income and expenditure account it is seen that no activities has been started by the applicant as per the objects. The Company is doing only capital expenditure like acquisition of land, conversion of land, appointment of architect, soil testing etc. In a period of more than five years the assessee could not carry out any of the activities in accordance with the objects of the company. Seeing the insignificant nature of activity the case does not seems to be fit for granting exemption u/s 80G at this stage. Therefore, its application in form No. 10G seeking exemption u/s 80G is rejected."
2.8 Ld DR is heard who has relied upon the decision of ITAT Delhi Bench in case of Pearls Educational Institute v. CIT [2016] 36 SOT 218.
2.9 We have heard the rival contentions and pursued the material available on record. Firstly, it is interesting to note that it is for the third time that the appellant has filed the subject application under section 80G(5) and on the previous occasions, the reasons cited by the ld CIT varies from assessee not registered u/s 12AA to registration certificate u/s 12AA not enclosed with the application and hence, it is not eligible for approval u/s 80G(5)(vi). The reasons cited in the impunged order states that seeing the insignificant nature of activity, the case does not seems to be fit for granting exemption u/s 80G at this stage. The question that arises for consideration is whether the reason cited by the ld CIT justifies denial of approval under section 80G(5) of the Act. 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. As can be seen from Revenue's stand of rejection of earlier applications filed by the appellant, the approval under section 80G is closely linked to approval under section 12AA. Now once, the registration under section 12AA has been granted, the approval under section 80G should not be denied unless the case of the appellant falls under non-fulfillment of one or more of the conditions specified in section 80G(5) which is not the case before us. Regarding the activities carried out by the appellant towards achievement of its object for establishment of the hospital and medical college, it cannot be said that assessee has not yet commenced any activity. The CIT has accepted that assessee has taken steps for implementation of its objects in as much as it has acquired the land, converted the land for institutional use for setting up the hospital project, appointed the architect., carried out soil testing etc. All these activities are towards the achieving the objects of the trust. The registration under section 25 of the companies Act has been granted on 13.10.2012, subsequently the land was acquired on 29.3.2013 and thereafter other activities like conversion of land use, appointment of architects and soil testing has been done. The project of setting up hospital and medical college is a complex project requiring various approvals, clearances etc which the appellant has been complying with. It is critical that as part of fund raising programme for this project, the appellant has sought the approval under section 80G whereby the donations can be accepted for approved purposes and the project can be expedited. The approval under section 80G will thus aid and provide the necessary support in successful completion of the project. In our view, ld CIT (Exemption) was not correct in denying the approval under section 80G(5) to the appellant.
2.10 Further, we have gone through the decision of decision of Coordinate Bench in case of Pearls Educational Institute (supra). The said decision was rendered in the context of renewal of approval under section 80G and the fact that the appellant in that case had not commenced construction activities even after 13 years which is distinguishable on facts as stated above. In our view, the said decision doesn't support the case of the Revenue. In fact, the Hon'ble Allahabad High Court in case of Hardayal Charitable and Educational Trust (supra) is directly on the issue and supports our view. In that case, assessee trust applied for grant of registration u/s 12AA and approval u/s 80G(5). The CIT refused to grant registration and approval on grounds that trust was in process of construction of college for studies and that huge amount was spent on advertisement and promotion of business of its family concern. In subsequent assessment year, registration u/s 12AA and approval 80G was granted with conditions that exemption certificate would be effective from A.Y. 2012-13. It was held that:—
"For registration u/s 12AA which was necessary for claiming exemption u/s 11 and 12, CIT was not required to look into activities, where such activities had not or were in process of its initiation. Where a trust set up to achieve its objects of establishing educational institution, was in process of establishing such institutions, and receives donations, registration u/s 12AA cannot be refused on ground that Trust had not yet commenced charitable or religious activity. Enquiry of the CIT at such preliminary stage should be restricted to genuineness of objects and not activities unless such activities had commenced."
2.11 Interestingly, the decision of the Coordinate Bench in case of Hardayal Charitable and Educational Trust(supra) which was overruled by the Allahabad High Court was quoted by the Revenue while denying the exemption initially to the appellant under section 12AA. Given that the appellant has subsequently been granted approval under section 12AA and the said decision of the Coordinate Bench is overruled by the High Court shows that the appellant is well within its right to seek approval under section 80G as well. In view of above, the CIT(Exemption) is hereby directed to grant approval u/s 80G(5) of the IT Act, 1961 to the appellant.
In the result, the appeal filed by the assessee is allowed.