2013 (7) TMI 1100 - AT - Income Tax

Summary

Issues involved: Registration of institution as Charitable Trust u/s 12A of I.T. Act 1961.

Summary:
The appeal was against the order of the Commissioner of Income-tax rejecting the application u/s 12A to register the institution as a Charitable Trust. The assessee, a society supplying mid-day meals to primary schools, argued that its activity was in the nature of advancement of general public utility, not trade or business. The CIT refused registration citing trade or business activity due to consideration received for meals. However, the CIT failed to consider the second proviso to Section 2(15) regarding the receipt limit. The ITAT noted that the activity fell within the ambit of general public utility and directed the CIT to register the society u/s 12AA. The ITAT clarified that if the receipt exceeds the limit in the second proviso in any future year, the Revenue could refuse exemption u/s 11.

The ITAT analyzed Section 2(15) of the Act, which defines "charitable purpose" and includes the advancement of general public utility. The first proviso states that such advancement is not charitable if it involves trade, commerce, or business. The second proviso exempts this if the receipt is below a specified limit. The CIT acknowledged the society's activity as general public utility but deemed it business due to consideration received for meals. The ITAT agreed with the CIT on this point but highlighted the second proviso, noting the society's receipt was below the limit, making it charitable.

The ITAT considered the CIT's observation on the society's expenses, categorized as business and administration expenses. However, the society clarified that these expenses were related to meal preparation and supply to schools. The ITAT agreed that the expenses were necessary for the society's activity of providing mid-day meals, falling within the ambit of general public utility. The ITAT directed the CIT to register the society under Section 12AA, with a caution regarding future receipt limits for exemption under Section 11.

In conclusion, the ITAT allowed the appeal, emphasizing the society's activity as falling within the scope of general public utility, despite considerations for meal provision. The ITAT directed the CIT to register the society under Section 12AA, with a reminder about future receipt limits for tax exemption.