DIT (Exemptions) and Another vs Adhaar

V.G. Sabhahft, J.—This appeal is filed by the Revenue being aggrieved by the order passed by the income tax Appellate Tribunal, Bangalore Bench A (hereinafter called as Tribunal for brevity) in ITA No. 438/Bang/2008, wherein the Tribunal by reversing the order passed by the Director of IT (Exemptions), Bangalore, has directed the Director of IT (Exemptions) to renew the exemptions granted u/s 80G of the IT Act, 1961 (hereinafter called asActfor brevity) by order dt. 19th Dec, 2008.

The respondent herein having been granted registration u/s 12A and recognition u/s 80G of the Act upto to 31-3-2007, application was filed for continuation of the recognition u/s 80G of the Act to Director of IT (Exemptions). A show-cause notice was issued to the respondent as to why the application for continuation should not be rejected on the ground that there is violation of the provisions of section 11(5) of the Act as shares in a private company had been held for more than one year, contrary to the conditions stipulated in section 13(1)(d)(iia) r/w section 11(5) of the Act.

The respondent submitted the explanation contending that the fact that the respondent is spending the amount towards charitable purpose and is not spending any amount towards any other purpose and not making any profit, is not disputed. The shares were donated by the company and the same were held in trust by the trustee and all the shares have been sold as on 3-10-2007. However, the application was rejected by not accepting the explanation offered by the respondent and by holding that there is violation of conditions stipulated in section 13(1)(d)(iia) r/w section 11(5) of the Act as the shares were held for more than one year without disposing of the same as per the conditions referred to above. Accordingly, application for continuation of the exemption was rejected.

Being aggrieved by the said order respondent preferred ITA No. 438/ Bang/2008 and the Tribunal having found that there is no dispute that the amount is spent by the respondent towards charitable purpose and conditions for continuation of the exemption have been made out, continuation could not be denied by the Director of IT (Exemptions) on the ground of making rowing enquiry into assessment made in violation of conditions stipulated in section 13(1)(d)(iia) r/w section 11(5) of the Act as at the stage of continuation of exemption granted u/s 80G of the Act the Director of IT (Exemptions) has to consider the conditions u/s 80G of the Act and following the earlier decision of the Tribunal (sic) in the case of N.N. Desai Charitable Trust Vs. Commissioner of Income Tax, and in the case of Orpat Charitable Trust Vs. Commissioner of Income Tax, the Tribunal found that the bonus shares were received as donation without being routed through income and expenditure account for the specific purpose being carried out by Nirmala Bangalore and Swachha Bangalore Project Fund in collaboration with Bangalore Corporation was continued by the assessee from the period prior to the asst. yr. 2004-05 and the amount received by way of dividend should also be included and the dividend received has also been credited to the corpus held in trust by the respondent trust. Wherefore, in view of the finding given by the Director of IT (Exemptions) that respondent-trust is spending the amount for charitable purpose and there is no charitable recognition of the amount. Director of IT (Exemptions) could not have gone into the. details of assessment for every year since no action was taken from 2003 till such sale of shares were made on 3-10-2007 if there was any violation of the conditions of grant of exemptions and accordingly, set aside the order passed by the Director of IT (Exemptions) and approved recognition of the trust as applied for.

Being aggrieved by the said order of the Tribunal this appeal is filed contending that the Tribunal was not justified in holding that Director of IT (Exemptions) could not go into the accounts of the respondent-trust and since there is violation of section 13(1)(d)(iia) r/w section 11(5) continuation of the exemption could not have been granted u/s 13(1)(d)(iia) and also it is contended that the substantial question of law as to;

(1) Whether the Tribunal was correct in holding that the consideration made by the Director of IT (Exemptions) when examining the application u/s 80G(5) of the Act regarding violation of section 11(5) and 13(1)(d)(iia) of the Act in respect of Infosys shares was in the realm of the jurisdiction of the AO even though rule 11AA(4) of the Rules contemplated such an enquiry; and (2) Whether the Tribunal was correct in proceeding to hold that section 80G of the Act permission should be allowed to the assessee despite the assessee failing to comply with section 11 and 13 of the Act in continuing to hold Infosys shares contrary to the said provision which violation was applicable to the asst. yrs. 2007-08 and 2008-09 ?.

We have heard the learned counsel appearing for the appellant.

The learned counsel appearing for the appellant reiterated the grounds urged in the appeal memo and submitted that the shares of Infosys which has been donated to the respondent-trust for doing the charitable works meeting the objects of the respondent-trust in discharging the charitable objects would not have held the shares for more than one year as the said shares do not fall within the purview of shares that can be held u/s 11(5) of the Act and since shares were held for more than one year without selling the same, there is violation of section 13(1)(d)(iia) r/w section 11(5) of the Act. He has taken us through the provisions of the Act as referred to by him and submitted that substantial question of law as raised in the appeal memo arises for determination among the parties in this appeal.

We have given careful consideration to the contention of the learned counsel appearing for the appellant and scrutinised the material on record.

The material on record would clearly show the fact that respondent had been granted exemption u/s 12A and u/s 80G of the Act upto 31-3-2007, is not in dispute. There is also no dispute that respondent-trust is spending the amount received by it which is exempted from payment of income tax for charitable purpose only. There is no allegation of misuse of fund for any other purpose. Details regarding receipt of shares and sale of shares received as donation by the respondent-trust as summarised in the appeal memo itself would show that as on 3-10-2007 all the shares held by the respondent has been sold and balance was nil. No action has been taken during the previous assessment years when there is alleged violation of section 13(1)(d)(iia) r/w section 11(5) of the Act at the time of passing the order of assessment. Wherefore, in view of the above said undisputed question of fact the finding given by the Tribunal that Director of IT (Exemptions) was not justified in going into the details of the accounts which is not within its realm while considering application u/s 80G of the Act, is justified and the same does not suffer from any arbitrariness or perversity so as to give rise to any substantial question of law to be decided in this appeal.

Accordingly, we hold that this appeal does not give rise to substantial question of law to be decided among the parties and therefore, does not merit admission. The appeal is dismissed.