By TIOL News Service

JAIPUR, JUNE 14, 2017: THE ISSUE BEFORE THE TRIBUNAL IS - Whether approval of exemption u/s 80G is subject to grant of approval u/s 11(1)(c) of the I-T Act. YES is the answer.

Facts of the case:

The assessee was a company formed with charitable objects, registered u/s 8 of the Companies Act, 2013. The CIT(E) granted registration u/s 12AA(1)(b) of Act. However approval u/s 80G(5)(vi) of the Act, was denied to the assessee company. In the order denying approval u/s 80G(5)(vi), the CIT (Exemption) 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 was stated by the CIT (Exemption) that the applicant had simply collected funds and has not carried out any significant charitable activities.

On appeal, Tribunal held that,

++ requirement of Section 80G was 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 outside India. As per the CIT(E), the assessee had 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 was no approval which has been submitted by the applicant in this regard. 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 was established in India for a charitable purposes and it fulfills certain conditions. The first condition which has been stipulated was 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. A close reading of the above provisions, namely 11(1)(c)(i) which was applicable in the instant case, it was clear that income derived from property held under trust for a charitable purpose which tends to promote international welfare in which India was interested, to the extent to which such income was 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. Further, the applicability of section 11(1)(c)(i) had 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;

++ 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 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.

(See 2017-TIOL-871-ITAT-JAIPUR)