Rejection of Section 80G Approval on Grounds of Surplus and Fee Receipts Not Sustainable: ITAT

Case: Kurunji Education Trust (R) v. CIT (Exemptions)

Court: ITAT Bangalore Bench ‘B’

ITA No.: 714 (Bang) of 2025

Assessment Year: 2025–26

Date of Order: 25 February 2026

Brief Facts:

• The assessee was a charitable trust engaged in educational activities and registered under section 12A of the Income-tax Act. 

• The trust had earlier been granted provisional approval under section 80G.

• Subsequently, the trust filed Form 10AB seeking permanent approval under section 80G(5).

• The Commissioner of Income Tax (Exemptions) rejected the application on several grounds, including: 

• The trust reported consistent surplus of income over expenditure, which indicated a profit motive.

• Educational institutions like the assessee were well-funded through student fee receipts, which were not commensurately used for facilities.

• Fee receipts were not donations, and therefore the provisions of section 80G were not applicable.

• Aggrieved by the rejection of approval under section 80G, the assessee filed an appeal before the Income Tax Appellate Tribunal.

Observations:

The Tribunal observed that:

• The assessee trust was validly registered under section 12A and had already been granted provisional approval under section 80G. 

• At the time of granting such registration, the authorities would have already satisfied themselves regarding the genuineness of the activities of the trust.

• While considering an application for approval under section 80G(5), the scope of enquiry of the Commissioner is limited to examining the genuineness of the activities of the institution and whether the conditions prescribed under section 80G(5)(i) to (v) are satisfied.

• The Commissioner had incorrectly examined the provisions of sections 80G(1) and 80G(2) from the perspective of donors claiming deduction, rather than from the perspective of the institution seeking approval.

• The existence of surplus income cannot by itself establish a profit motive, particularly when the funds are applied towards the charitable objects of the trust.

• Issues relating to application of income, surplus computation, and compliance with sections 11, 12 and 13 are matters to be examined during assessment proceedings and not at the stage of granting approval under section 80G.

• The Commissioner had made general observations regarding fee collections and funding of private institutions without any specific evidence showing diversion of funds or non-genuine activities.

• Since there was no finding that the trust’s activities were non-genuine or that it failed to meet the conditions of Section 80G(5), the rejection of approval was held to be unjustified.

The Tribunal held that while granting approval under Section 80G, the authority must limit its enquiry to the genuineness of activities and compliance with the statutory conditions under Section 80G(5). Matters relating to surplus income or application of funds fall within the scope of assessment proceedings and cannot be the sole basis for rejection.