2010 (8) TMI 357 - AT - Income Tax

Charitable purpose - education - Refusal to register under section 12AA(1)(b)(ii) - Held that education per se is one of the charitable purpose has specifically defined in section 2(15) for the purpose of act. Under the present case, it is evident from the licence granted under section 25 of the Companies Act as well as perusal of the main objects of the company mentioned above that the company is perfectly constituted to advance charitable activity. It is amply clear that all the relevant conditions are fully satisfied in the case of the assessee in as much as the assessee has been constituted as a body corporate with the object of holding property and income derived therefrom under trust solely in pursuing educational activities, which is a charitable purpose. CIT in this case has failed to appreciable distinction between the primary objects and the enabling powers and ancillary activities to pursue the main objects. Thus the reasoning given by the CIT to deny registration to the assessee are not sustainable. Assessee is eligible of registration u/s 12AA and exemption u/s 80.

Issues Involved:
1. Rejection of the application for registration under section 12AA of the Income-tax Act.
2. Rejection of the application for registration under section 80G of the Income-tax Act.

Detailed Analysis:

1. Rejection of the application for registration under section 12AA of the Income-tax Act:

The assessee, a company incorporated under section 25 of the Companies Act, 1956, applied for registration under section 12A(1)(a) of the Income-tax Act. The Commissioner of Income-tax, Faridabad, rejected this application, citing that the company's memorandum of association included objects that were not solely charitable. The Commissioner emphasized that the main objects and 28 sub-clauses in the memorandum allowed for the application of funds to non-charitable purposes, which could lead to activities repugnant to law and not in line with charitable principles as per the Income-tax Law.

The Tribunal, however, found that the company had been granted a license under section 25 of the Companies Act, 1956, which recognized it as an association formed for promoting charitable objects. The main objects of the company were to promote education in various fields, and it was explicitly stated that none of the objects would be carried out on a commercial basis. The Tribunal noted that the conditions for registration under section 12A/12AA were satisfied, as the company was holding property under trust for charitable purposes, specifically education, which is defined as a charitable purpose under section 2(15) of the Income-tax Act.

The Tribunal referred to the Hon'ble Jurisdictional High Court's observation in the case of ICAI Accounting Research Foundation v. Director General of Income-tax (Exemptions), which stated that a company granted registration under section 25 of the Companies Act is recognized for promoting education or other objects of general public utility. The Tribunal concluded that the Commissioner had erred in interpreting the incidental or ancillary objects as enabling non-charitable activities. It was clarified that these were merely enabling powers to pursue the main object of education. Hence, the Tribunal directed that the assessee be granted registration under section 12AA.

2. Rejection of the application for registration under section 80G of the Income-tax Act:

The Commissioner of Income-tax also denied the assessee's application for exemption under section 80G, citing the lack of registration under section 12AA. The Tribunal, having established that the assessee was eligible for registration under section 12AA, held that the assessee was also eligible for exemption under section 80G.

Conclusion:

The Tribunal allowed both appeals filed by the assessee, directing that the company be granted registration under section 12AA and exemption under section 80G of the Income-tax Act.

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