CIT(E) Oversteps Bounds: Surplus and Fee Receipts No Ground to Deny 80G Approval
The Legal Issue
The core legal question was the scope of enquiry permissible for the Commissioner of Income-tax (Exemption) [CIT(E)] when considering an application for permanent approval under Section 80G(5).
Specifically:
Is the CIT(E) allowed to examine the application of funds, surplus accumulation, or “profit motive” at the approval stage?
Does the presence of fee receipts and an annual surplus justify the rejection of an 80G approval if the trust is already registered under Section 12A?
Facts of the Case
Registration Background: The assessee-trust was already registered under Section 12A (which confirms its charitable status) and held provisional approval under Section 80G(5).
The Application: The trust filed Form 10AB to convert its provisional approval into a permanent one.
The Rejection: The CIT(E) rejected the application on two primary grounds:
The trust reported a surplus every year, which the Revenue interpreted as a “profit motive” rather than a charitable intent.
The trust received fees, which the CIT(E) claimed did not fall under the purview of “donations” mentioned in Section 80G.
The Assessee’s Defense: The trust argued that fees were generated from its regular charitable activities (education/medical) and that the surplus was used for the trust’s objects. They contended that the CIT(E) cannot act as an Assessing Officer (AO) during the approval stage.
The Decision
The Income Tax Appellate Tribunal (ITAT) (and subsequently upheld in similar 2024/2025 rulings like Dr. T.M.A. Pai Foundation) ruled in favour of the assessee:
Limited Enquiry at Approval Stage: The scope of enquiry under Section 80G is restricted to:
The genuineness of the charitable activities.
Fulfillment of the specific conditions listed in Section 80G(5) (e.g., maintaining accounts, trust deed clauses).
Assessment vs. Approval: Matters related to the application of income (Sections 11, 12, and 13) and whether a surplus is being properly utilized are to be examined by the Assessing Officer during assessment proceedings, not by the CIT(E) at the time of granting registration or approval.
Surplus is Not “Profit”: The Court held that a surplus does not automatically imply a commercial motive. If the activities are genuine and the objects are charitable, the mere existence of a surplus or fee receipts is not a disqualification for 80G.
Absence of Proof: The CIT(E) failed to point out any specific instance of fund diversion or non-genuine activity. Rejection based on “sweeping statements” about profit was held unsustainable.
Key Takeaways
CIT(E) is not an Auditor: The Commissioner’s job at the 80G stage is to verify the “existence” and “nature” of the charity, not to perform a deep-dive audit of the balance sheet.
12A Registration as a Shield: Once a trust is registered under Section 12A, its charitable purpose is largely accepted. Denying 80G on the same set of facts without proving non-genuineness is legally inconsistent.
Commercial Receipts: As long as the “dominant object” is charitable, charging a fee (for a school, hospital, etc.) is permissible. These receipts are business income incidental to the charity, not a bar to 80G.
Action for Trusts: Trusts facing 10AB rejections should emphasize that surplus accumulation is a matter of “application of income” (governed by Section 11/12) and cannot be used as a tool to block the 80G donor benefit.
IN THE ITAT BANGALORE BENCH ‘B’
Kurunji Education Trust (R)
v.
CIT (Exemptions)*
Prashant Maharishi, Vice President
and Keshav Dubey, Judicial Member
and Keshav Dubey, Judicial Member
IT Appeal No. 714 (Bang) of 2025
[Assessment year 2025-26]
[Assessment year 2025-26]
FEBRUARY 25, 2026
Dr. Sheetal Borker, A.R for the Appellant. Subramanian, JCIT D.R. for the Respondent.
ORDER
Keshav Dubey, Judicial Member.- This Appeal at the instance of the assessee is directed against the order of ld. CIT(Exemptions) dated 27.2.2025 vide DIN and Notice No: ITBA/EXM/F/EXM45/2024-25/1073775752(1) rejecting the application filed for approval u/s 80G of the Income Tax Act, 1961 (in short “The Act”).
2. The assessee has raised the following Grounds of appeal:-
| 1. | On the facts and in the circumstances of the case the learned Commissioner of Income Tax (Exemptions) erred in denying the approval under section 8OG(5)(iii) of the Income tax Act, 1961. |
| 2. | The learned Commissioner of Income Tax (Exemptions) erred in holding that the appellant had not furnished sufficient details or proof of the activities of the trust/Institution within the meaning of section 2(15) of the Income tax Act, 1961 when on the same set of facts and material furnished the learned CIT(E) had granted registration under section 12AB of the Income tax Act, 1961. |
| 3. | The learned Commissioner of Income Tax (Exemptions) having satisfied with the genuineness of the trust and also having satisfied with the activities of the trust to grant registration under section 12AB of the Income tax Act, 1961 ought to have granted the approval under section 8OCr(S)(iii) of the Income tax Act, 1961 to enable the appellant trust to get donations for carrying out its objects. |
| 4. | The learned Commissioner of Income Tax (Exemptions) has failed to comprehend the’ fact that, appellant has not only having fees receipts it also has other than fees receipts, which are eligible for deduction under section 8OG of the Income tax Act, 1961. |
| 5. | The learned Commissioner of Income Tax (Exemjations) has failed to comprehend the fact that, “fees receipts” is the revenue generated out of the regular activities carried by the Institution/Trust, which does not comes under the definition of Donation Received under section 8OG of the Income tax Act, 1961. |
| 6. | The learned Commissioner of Income Tax (Exemptions) has wrongly assumed the chair of Appellant Trust by creating her own opinion at €.4 of the order dated 17.1.2025 i.e., answer to (i) is “No” whereas answer to (ii) is Yes, by doing so, learned CIT(E) overlooked the fact that, the answer to (i) and (ii) may be vis a vis. |
| 7. | The learned Commissioner of Income Tax (Exemptions) while arriving at the excess of income over expenditure has grossly ignored the capital expenditure applied during the year as application of income under section 11(1) of the Income tax Act, 1961. |
| 8. | The learned Commissioner of Income Tax (Exemptions) erred in law in not allowing accumulation under section ll(l)(a) of the Income tax Act, 1961, being 15% of the gross receipts, as application of income. |
| 9. | The learned Commissioner of Income Tax (Exemptions) has failed to understand the method of computation of total income ie., application income in Trust cases. |
| 10. | The learned Commissioner of Income Tax (Exemptions) has grossly ignored the fact that, the appellant had granted registration under section 80G from the date of appellant’s inception. |
| 11. | The learned Commissioner of Income Tax (Exemptions) was not satisfied with the existing materials furnished by the appellant for granting approval in the interest of justice and having failed to do so, the order of denial is opposed to law and liable to be cancelled. |
| 12. | For these and such other grounds that may be urged at the time of hearing, the Appellant prays that the appeal may be allowed. |
3. Brief facts of the case are that the assessee trust is registered under sub-clause (i) of clause (ac) of sub-section (1) of section 12A of the Act vide Unique Registration No. (URN)-AADTS2189KE20213 dated 4.4.2022 from AY 2022-23 to AY 2026-27. Further, the assessee trust had been granted provisional approval vide Unique Registration No.(URN)- AADTS2189KF20229 dated 4.4.2022 under clause (iv) of first proviso to sub-section (5) of section 80G of the Act from 4.4.2022 to AY 2024-25 in form No.10AC by the ld. PCIT/CIT. The assessee trust thereafter applied for permanent approval as per the clause (iii) of first proviso to sub-section (5) of section 80G of the Act in form no.10AB on 10.8.2024.
3.1 The ld. CIT (Exemption), Bengaluru after granting opportunity of being heard rejected the approval u/s 80G of the Act on the following grounds:-
| 1. | There is substantial increase in income over expenditure for an entity established for the purpose of charitable activities, which indicate that: |
| i. | The assessee is not able to apply the resources at the hand towards the charitable objects. |
| ii. | The profit motive of the entity which does not augur well with the charitable motive as per the object of the trust. |
| 2. | The private institutions are well funded by high fee receipts and management fee which undergoes an increase every year does not commensurately passed on in terms of tangible or intangible facilities. |
| 3. | The receipts in the form of “fees collections” do not fall under the definition of donations and therefore, provisions of section 80G of the Act are not found applicable in the present case. The provisions of section 80G of the Act are applicable in case of receipts in the form of donations to certain funds as defined in section 80G(2) of the Act. |
| 4. | It is the Government aided schools/colleges/institutions and other institution operating in remote areas with little or no infrastructure which deserves the benefit of section 80G of the Act. |
| 5. | The donations received u/s 80G of the Act are required to be reported in Form 10BD followed by issue of Form 10BE to the donors. Had the intent of the legislature been to include all kinds of receipts including fee receipts u/s 80G of the Act, the reporting of receipts would not have been restricted to donations alone. |
3.2 In view of the above, the ld. CIT(A) held that the fee receipts do not fall under the purview of receipts u/s 80G of the Act and accordingly held that approval u/s 80G of the Act cannot be granted in the present case. In view of the above, the application filed by the assessee trust in form 10AB dated 10.8.2024 for approval u/s 80G of the Act was rejected and accordingly approval was cancelled by the ld. CIT(Exemption) vide order in Form No.10AD dated 27.2.2025.
4. Aggrieved by the order of ld. CIT(Exemption), Bengaluru dated 27.2.2025, the assessee has filed the present appeal before this Tribunal. The assessee has also filed the paper book comprising 9 pages containing therein the copy of provisional approval u/s 80G of the Act, copy of order of registration u/s 12AB of the Act along with the details of submissions made before ld. CIT(Exemptions).
5. Before us, the ld. A.R. of the assessee vehemently submitted that the ld. CIT(Exemptions) erred in rejecting the grant of approval u/s 80G of the Act specially having satisfied with the genuineness of the activity of the trust and granted registration u/s 12AB of the Act. The ld. A.R. of the assessee also submitted that for grant of approval u/s 80G of the Act, the ld. CIT (Exemptions) should have only be satisfied about the genuineness of the activity of the trust, and fulfillment of the conditions laid down in clause (i) to (v) of section 80G (5) of the Act. Further, the ld. A.R. of the assessee submitted that the fee receipts are the revenue generated out of the regular activities carried on by the trust and it has nothing to do with grant of approval u/s 80G of the Act for the donations to be received from the donor. The assessee Trust never intended to grant 80G certificate to the students who are paying the fees for their Nursing courses.
6. The ld. D.R. on the other hand vehemently supported the order of the authorities below and submitted that there were substantial increase in surplus of each year and added to the general fund which were not utilized towards charitable purposes. Further, the ld. D.R. submitted that the fees collection from the students do not fall under the definition of donations and therefore, the provisions of section 80G of the Act are not applicable in the present case.
7. We have heard the rival submissions and perused the materials available on record. It is an undisputed fact that assessee trust is registered under sub-clause (i) of clause (ac) of sub-section (1) of section 12A of the Act vide URN No. AADTS2189KE20213 dated 4.4.2022 from assessment year 2022-23 to 2026-27. Further, assessee trust has also been granted provisional approval vide URN No. AADTS2189KF20229 dated 4.4.2022 under clause (iv) of first proviso to sub-section (5) of section 80G of the Act from 4.4.2022 to AY 2024-25 in Form No.10AC by the ld. PCIT/CIT. The assessee trust thereafter applied for permanent approval as per clause (iii) of first proviso to sub-section (5) of section 80G of the Act in form No.10AB on 10.8.2024. We are of the considered opinion that at the time of granting registration u/s 12AB of the Act, the ld. CIT(Exemption) must have after calling for the documents/information from the trust satisfied herself about the genuineness of the activity of the trust, or institution and compliance of such requirement of any other law for time being in force have only granted the registration.
7.1 On going through the annexure to Form No.10AD dated 27.2.2025, we observe that the main contentions for rejection by the ld. CIT (Exemption) is that the provisions of section 80G of the Act are applicable in cases of receipts in the form of donations to certain funds as defined in section 80G(2) of the Act. The ld. CIT (Exemption) is of the view that the receipts in the form of “fee collection” do not fall under the definition of donations and therefore, provisions of section 80G of the Act are not found applicable in the present case. Further, in this regard the ld. CIT(Exemptions) further contended that the donations received u/s 80G of the Act are required to be reported in Form 10BD followed by issue of Form 10BE to the donors. Had the intent of the legislature been to include all kinds of receipts including fee receipts u/s 80G of the Act, the reporting of receipts would not have been restricted to donations alone.
In this regard, we are of the considered opinion that the ld. CIT (Exemption) without application of mind and more particularly without properly understanding the fact of the case has completely misdirected herself in holding that provisions of section 80G of the Act are applicable in the cases of receipts in the form of donations to certain funds as defined in section 80G(2) of the Act by reproducing some portion of sub-section (1) & sub-section (2) of section 80G of the Act. In our opinion, the ld. CIT (Exemptions) has decided the issue from the perspective of the donor who claims the deduction u/s 80G of the Act (Chapter VIA) from gross total income after paying donations and not from the perspective of the institution/trust being the donee, who is presently seeking approval u/s 80G of the Act. Further, section 80G(1) of the Act talks about that in computing the total income of the assessee, there shall be deducted, in accordance with and subject to the provisions of this section. Sub-section (2) of section 80G of the Act specify the sum referred to in sub-section (1), and therefore, we are of the considered opinion that while considering the application of the assessee trust for granting of approval u/s 80G(5) of the Act, the ld. CIT (Exemption) had on a wrong stand point had relied upon and reproduced the provisions of section 80G(1) of the Act and 80G(2) of the Act, which in our view is from the perspective of donor claiming deduction u/s 80G of the Act. However, in the present case, the assessee trust has applied for approval u/s 80G(5) of the Act and therefore, the provisions of section 80G(1) of the Act and 80G(2) of the Act are not applicable in the case of the assessee. In our view, these provisions are applicable for claim of deduction of the sum paid by way of donation to the Charitable organization and for the purposes of granting approval u/s 80G of the Act, the relevant section is sub-section (5). The ld. CIT (Exemption) after receiving the application for granting approval u/s 80G of the Act shall call for such document or information and make such enquiry as he/she thinks necessary in order to satisfy himself/herself about the genuineness of the activity of such institution or fund and the fulfillment of all the conditions laid down in clauses (i) to (v) as follows:
(5) This section applies to donations to any institution or fund referred to in subclause (iv) of clause (a) of sub-section (2), only if it is established in India for a charitable purpose and if it fulfills the following conditions, namely:-
(i) where the institution or fund derives any income, such income would not be liable to inclusion in its total income under the provisions of sections 11 and 12 [* * *] [Certain words omitted by Act 21 of 1998, Section 29 (w.e.f. 1.4.1999).] [* * *] [Certain words omitted by Act 20 of 2002, Section 30 (w.e.f. 1.4.2003).] [or clause (23-AA) or clause (23-C)] [Substituted by Act 11 of 1987, Section 35, for ” or clause (23-C)” (w.e.f. 1.4.1988).] of section 10:
[Provided that where an institution or fund derives any income, being profits and gains of business, the condition that such income would not be liable to inclusion in its total income under the provisions of section 11 shall not apply in relation to such income, if-
(a) the institution or fund maintains separate books of account in respect of such business;
(b) the donations made to the institution or fund are not used by it, directly or indirectly, for the purposes of such business; and
(c) the institution or fund issues to a person making the donation a certificate to the effect that it maintains separate books of account in respect of such business and that the donations received by it will not be used, directly or indirectly, for the purposes of such business;
(ii) the instrument under which the institution or fund is constituted does not, or the rules governing the institution or fund do not, contain any provision for the transfer or application at any time of the whole or any part of the income or assets of the institution or fund for any purpose other than a charitable purpose;
(iii) the institution or fund is not expressed to be for the benefit of any particular religious community or caste;
(iv) the institution or fund maintains regular accounts of its receipts and expenditure;][*] [The word ” and” omitted by Act 32 of 1994, Section 24 (w.e.f. 1.4.1994).]
(v) [the institution or fund is either constituted as a public charitable trust or is registered under the Societies Registration Act, 1860 (21 of 1860), or under any law corresponding to that Act in force in any part of India or under section 25 of the Companies Act, 1956 (1 of 1956), or is a University established by law, or is any other educational institution recognised by the Government or by a University established by law, or affiliated to any University established by law,] [Inserted by Act 11 of 1983, Section 39 (w.e.f. 1.4.1984).][* * *] [Certain words omitted by Act 20 of 2002, Section 30 (w.e.f. 1.4.2003).][or is an institution financed wholly or in part by the Government or a local authority;] [Inserted by Act 11 of 1983, Section 39 (w.e.f. 1.4.1984).][*] [The word ” and” omitted by Act 33 of 2009, Section 33 (w.e.f. 1.4.2009).]
7.2 In view of the above, we are of the considered opinion that at the time of granting of approval u/s 80G of the Act, the authority has to satisfy herself that the charitable institution is established in India for charitable purposes and the activity of the assessee trust are genuine and the assessee trust also fulfills all the conditions as mentioned above.
7.3 Now coming to the another allegation of ld. CIT (Exemptions) that the assessee trust had reported surplus every year which were not utilized towards charitable purposes. On going through the income and expenditure account for last 3 years reproduced by the ld. CIT (Exemption), we take a note of the fact that assessee trust had applied substantial amount towards the educational activities, which is one of the prime object of the trust. We are of the considered opinion that the scope of enquiry by the ld. CIT (Exemption) while dealing with the application for grant of approval u/s 80G of the Act extends only to the satisfaction of the genuineness of the activity of such trust and the fulfillment of all the conditions laid down to clause (i) to (v) of Section 80G(5) of the Act and not the actual computation of surplus. We are also of the considered opinion that the provisions of section 11 & 12 along with section 13 including application of fund by the charitable organization are to be examined during the course of assessment proceedings and not at the time of granting approval u/s 80G(5) of the Act.
7.4 Finally, with regard to the observation of ld. CIT (Exemption) that the private institutions like assessee trust are well funded by the high fee receipts and management fee collected year on year basis which undergoes an increase every year does not commensurately passed on in terms of tangible and intangible facilities, we are of the considered opinion that the ld. CIT (Exemption) did not point out any specific circumstances under which the fee receipts had not been commensurately passed on in terms of tangible and intangible facilities or diverted in any manner. We are of the opinion that these are merely a sweeping statement without any corroborative evidences. The ld. CIT (Exemptions) in her order did not even whisper about any activity of the trust to be non-genuine. It is also not the case of the ld. CIT (Exemption) that the condition as specified under clause (i) to (v) of section 80G(5) of the Act are not fulfilled by the assessee trust.
7.5 In view of the above discussions, we allow the appeal of the assessee and direct the ld. CIT (Exemption) to grant approval u/s 80G of the Act to the assessee trust as applied in form No.10AB on 10.8.2024. It is ordered accordingly.
8. In the result, appeal filed by the assessee is allowed.