A series on Impact on Taxation of NPOs due to hardening of tax authorities’ attitude……(1)
We are increasingly finding situations where the Dept. is denying charitable status to various running NGOs by cancelling S.12AA & S.80G. We start a series from today highlighting some major decisions taken by the courts on these issues, most of you would find it of interest, considering it has a direct impact on taxability of NGOs.
In today’s edition we share a case, where the NGO concerned leased some of its surplus land to a commercial organisation having common directors, due to which tax authorities did not renew its S.80G certificate and even cancelled S.12AA. Ashoka Education Foundation while running school gave leased part of its surplus land to another organisation on rental purposes. The authorities alleged that the letting out of land to a commercial organisation for installation of RMC Plant on its land amounted to commercial activity. It further stated that the since there were common persons on the Board of the company to whom the land was let out and that of the charitable organisation, which means benefit had been given to persons covered under S.13(3) and hence it should be denied S.80G registration and its S.12AA registration cancelled.
Income Tax Tribunal (Pune) in its order stated that CIT while renewing the application for S.80G needs to verify if Charitable institution was undertaking the charitable activities as covered under its objects. Merely if some part of its land, it has let out on commercial basis does not mean that the entity is no longer undertaking the education / charitable activities as specified in its objects.
The judgement further stated that even if CIT has established that there was benefit given to persons falling under S.13(3), that will need to be considered at the time of tax assessment for that particular year by the assessing officer. Thus the charitable organisation cannot be denied S.80G registration if it is undertaking the educational & charitable activities as specified in its objects. It also declared S.12AA cancellation null & void, since the assessee was not given sufficient opportunity to defend why the same should not be cancelled. [citation: Ashoka Education Foundation v CIT (ITAT-Pune) 2009]
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Socio Research & Reform Foundation (NGO)
512 A, Deepshikha, 8 Rajendra Place, New Delhi – 110008
e-mail: socio-research@sma.net.in; website: http://www.srr-foundation.org