Regarding Sec 80G sec 5 clause (vi) was omitted by the Finance Act 2009 w e f 1st Oct 2009 for renewal application

IN THE INCOME TAX APPELLATE TRIBUNAL, “B” BENCH: KOLKATA

[Before Sri Mahavir Singh, J.M. & Sri C.D. Rao, A.M.]

I.T.A No. 2019/Kol/2010

Assessment Year : 2011-2012

Lions Club of Calcutta Hastings, Kolkata

(PAN : AAATL 4316 J)

(Appellant)

Vs

Director of Income Tax (Exemption),

Kolkata

 (Respondent)

For the Appellant : Shri J.M. Thard, A.R.

For the Respondent : Shri M. Bhattacharya, D.R.

Date of Hearing : 12.12.2011

Date of Pronouncement : 12.12.2011

ORDER

Per Shri Mahavir Singh, Judicial Member

This appeal by assessee is arising out of the order of ld. Director of Income-Tax (Exemption), Kolkata vide order No.DIT(E)/8E/247/03-04/2621-23 dated 24.09.2010, vide which he rejected the renewal application filed in Form No. 10G for claiming deduction under section 80G(5)(vi) of the Income Tax Act, 1961 (hereinafter to be referred to as “The Act”).

2. We have heard the rival contentions and gone through the facts and circumstances of the case. The brief facts are that the assessee is a charitable Institution registered under section 12AA of the Act by DIT(Exemption), Kolkata vide order dated 30.06.2004. According to assessee, the Institution has been carrying on charitable activities like organizing eye operation camps and providing eye glasses and other connected services with the treatment of eyes in rural areas. According to assessee, the Institution has also been conducting mass community marriages in rural areas and also giving financial help to poor for marriages. The assessee stated the fact that certificate of exempt deduction under section 80G(5)(vi) dated 30.06.2004 was issued by DIT(Exemption), Kolkata for a period from 03.12.2003 to 31.03.2005. The certificate of exemption was renewed further by order dated 19.10.2005 of DIT(Exemption), Kolkata for a further period from 01.04.2006 to 31.03.2010. The assessee filed application dated 15.03.2010 for further renewal in Form No. 10G under section 80G(5)(vi) of the Act and DIT (Exemption) without a speaking order and even though there was change in renewal provision that the exemption is to be granted in perpetuity, rejected the application. We find that section 80G(5)(vi) of the Act contained a proviso which reads as “Provided that any approval shall have effect for such assessment year or years, not exceeding five assessment years, as may be specified in the approval”. Further, considering the hardship of the said proviso, legislature omitted this proviso by the Finance (No.2) Act, 2009 w.e.f. 01.10.2009, but in this case, approval was granted upto 31.03.2010. Therefore, in view of the aforesaid omission of the said proviso, the exemption granted to assessee upto 31.03.2010 continued to be valid thereafter. This position has been explained by the CBDT Circular No. 5 explaining the provisions of Finance (No. 2) Act, 2009 in para 29.7 of the Circular, which reads as under :-

“This amendment has been made applicable with effect from 1^st October, 2009. Accordingly, existing approvals expiring on or after 1^st October, 2009 will be deemed to have been extended in perpetuity unless specifically withdrawn. However, in case of approvals expiring before 1st October, 2009, these will have to be renewed and once renewed these shall continue to be valid in perpetuity, unless specifically withdrawn”.

3. We find that a similar issue was decided on 28.02.2011 by Lucknow Bench ‘A’ of ITAT in ITA No. 674/Luc./2010 in the case of M/s. Association for Advocacy and Legal Initiatives, Lucknow –vs.- CIT-I, Lucknow, wherein in paras 10, 11, 12 & 13 Tribunal has observed as under :

“10. We have considered the submissions of both the parties and carefully gone through the material available on record. In the instant case, it is not in dispute that the assessee-trust is registered with the Sub-Registrar, Lucknow, having registration u/s. I2AA of the Act also which has been granted by the ld. Commissioner of Income Tax, Lucknow vide order dated 10.2.2010. The assessee was also granted approval u/s. 80G(5)(vi) of the Act w.e.f. 10.3.2000 which was valid till 31.3.2003 and later on renewal of the approval under the said section was granted vide order dated 9.9.2003 from 1.4.2003 to 31.3.2006, again vide order dated 7.12.2006 from 1.4.2006 to 31.3.2008 and finally vide order dated 16.9.2008 from 1.4.2008 to 31 .3.2010 by the Id. Commissioner of Income Tax-I, Lucknow. The copies of the said orders are placed at pages 41, 40 and 39 respectively of the assessee’s paper book. Earlier as per provisions contained in clause (vi) to sub-section (5) of section 80G, the approval was to be granted by he ld. Commissioner of Income Tax in accordance with Rules prescribed in Rule I2AA of the Income-tax Rule, 1962 and as per the proviso to section 80G(5)(vi) of the Act, the approval was to be renewed from time to time. However, considering the hardship, the Legislature in all its wisdom has sought to omit this proviso on 1.10.2009 vide its Finance (No.2) Act, 2009. Therefore now approval once granted shall continue to be valid in perpetuity. In the instant case, the approval was granted to the assessee upto 31.3.2010, therefore, in view of the aforesaid omission of the proviso to section 80G(5)(vi) of the Act vide Finance (No.2) Act, 2009, the approval once granted shall continue to be valid in perpetuity. The memo explaining the provisions in Finance (No.2) Bill, 2009 as reported in 314 ITR 193 (St.) at page 194 reads as under:

“This amendment will take effect from 1st day of April, 2009 and shall accordingly, apply in relation to assessment year 2009-70 only. Further as per clause (vi) of sub-section (5) of section 80G of the Income-tax Act, 1961, the institutions or funds to which the donations are made have to be approved by the Commissioner of Income-tax in accordance with the rules prescribed in rule 11AA of the Income-tax Rules, 1962 The proviso to this clause provides that any approval granted under this clause shall have effect for such assessment year or years, not exceeding five assessment years, as may be specified in the approval Due to this limitation imposed on the validity of such approvals, the approved institutions or funds have to bear the hardship of getting their approvals renewed from time to time. This is unduly burdensome for the bona fide institutions or funds and also leads to wastage of time and resources of the tax administration in renewing such approvals in aroutine manner. Therefore, it is proposed to omit the proviso to clause (vi) of sub-section (5) of section 80G to provide that the approval once granted shall continue to be valid in perpetuity. Further, the Commissioner will also have the power of withdraw the approval if the Commissioner is satisfied that the activities of such institution or fund are not genuine or are not being carried out in accordance with the objects of the institution or fund.

This amendment will take effect from 1st day of October, 2009. Accordingly, existing approvals expiring on or after 1st October, 2009 shall be deemed to have been “extended in perpetuity unless specifically withdrawn. However, in case of approvals expiring before 1st October, 2009, these will have to be renewed and once renewed these shall continue to be valid in perpetuity, unless specifically withdrawn”.

11. From the above it is crystal clear that the approval once granted u/s. 80G(5)(vi) of the Act shall continue in perpetuity. It is also noticed that the CBDT issued its circular No.5 being “Explanatory circular for Finance (No.2) Act, 2009” and para 29.7 of the said Circular reads as under:

“29.7. Applicability - This amendment has been made applicable w.e.f. 1st October 2009. Accordingly, existing approvals expiring on or after 1st October 2009 will be deemed to have been extended in perpetuity unless specially withdrawn. However, in. case of approvals expiring before 1st October 2009, these will have to be renewed and once renewed these shall continue to be valid in perpetuity, unless specifically withdrawn.”

12. The aforesaid Circular is in favour of the assessee and even if the assessee by ignorance or inadvertently filed an application for renewal, the CIT was required to decide the same in accordance with the amended provisions. As regards to the contention of the Id. D.R. that the provisions contained in 293C of the Act enables the CIT to withdraw approval is concerned, it is noticed that the said section has been inserted by the Finance (No.2) Act, 2009 w.e.f. 1.10.2009 i.e. from the date on which provisions of section 80G(5)(lvi) has been withdrawn, the provisions contained in 293C read as under:

293C. Where the Central Government or the Board or an income-tax authority, who has been conferred upon the power under any provision of this Act to grant any approval to any assessee, the Central Government or the Board or such authority may, notwithstanding that a provision to withdraw such approval has not been specifically provided for in such provision, withdraw such approval at any time. Provided that the Central Government or Board or income-tax authority shall, after giving a reasonable opportunity of showing cause against the proposed withdrawal to the assessee concerned, at anytime, withdraw the approval after recording the reasons for doing so.]”

13. From the proviso attached to the section 293C of the Act, it is crystal clear that even if any Income-tax Authority wants to withdraw approval, he shall issue a show cause notice against the proposed withdrawal to the assessee concerned and after giving a reasonable opportunity of being heard shall withdraw approval after recording reasons for doing so. The use of the word “shall” in the aforesaid proviso makes it mandatory for Commissioner of Income-tax to issue a show cause notice to the assessee against the proposed withdrawal of approval granted u/s. 80G(5) of the Act. However, in the present case no such show cause notice has been issued to the assessee. Therefore, we do not see any merit in this contention of the lad that the provisions contained in section 293C of the Act enables the ld. Commissioner of Income Tax to withdraw approval. We, therefore, considering the totality of the facts as discussed hereinabove are of the view that the ld. Commissioner of Income Tax was not justified in withdrawing approval once granted because the Legislature in all its wisdom has sought to omit this proviso to section 80G(5)(vi) of the Act and after omission of the said proviso, the approval once granted shall continue to be valid in perpetuity unless and until a show cause notice is issued by the concerned CIT showing his intention to withdraw already granted such approval. However, in the instance case, the CIT without issuing any such notice has withdrawn approval. We, therefore, set aside the impugned order of the ld. Commissioner of Income Tax and accordingly approval u/s. 80G(5) of the Act already granted to the assessee shall continue unless and until the concerned authority takes appropriate_action_in_accordance_with_law”.

4. In view of the above and the decision of ITAT, Lucknow Bench in the case of M/s. Association for Advocacy and Legal Initiates (supra), since the assessee was having valid exemption upto 31.03.2010, because of ignorance of the A/R of assessee, a mistaken application for renewal of exemption was filed, the same should not have been rejected for violation of the provisions of section 11(1)(a). In case, there is a violation of the provisions of section 11(1)(a), the relevant additions could have been made by the Assessing Officer in the hands of the Trust disallowing the exemption to the assessee accordingly. But in any case, renewal of exemption under section 80G(5)(vi) cannot be denied. Accordingly, we direct the DIT(Exemption), Kolkata to allow the exemption and this issue of appeal of the assessee is allowed.

5. In the result, the appeal filed by the assessee is allowed.

ORDER PRONOUNCED IN THE OPEN COURT ON 12 / 12 /2011.

                               Sd/-                                                       Sd/-

                           C.D. Rao                                       Mahavir Singh

                   Accountant Member                           Judicial Member

Dated : 12/ 12/ 2011

Copy of the order forwarded to:

1. Lions Club of Calcutta Hastings, 14/1, Sir Hariram Goenka Street, Kolkata-7

2 DIT(Exemption), Kolkata

3. CIT- , Kolkata

4. DR, Kolkata Benches, Kolkata

(True Copy)

                                                                                                    By Order

Assistant Registrar, I.T.A.T., Kolkata

Laha, Sr . P.S.