2010 (2) TMI 722 - AT - Income Tax

Condonation of delay - registration under s. 12AA - There appears to be a sufficient cause for delay in filing the appeal as argued by the learned counsel for the assessee Shri S.N. Prasad that the members of the governing body are from different States and they have to pass the resolution Regarding registration - The existence of enabling clause to distribute dividend disentitles the assessee to have the benefit of registration under s. 12A of the Act and it has so rightly been held by learned Director of IT (Exemptions). - decided against the assessee

Summary

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Rejection of application for registration under Section 12AA of the IT Act, 1961.
3. Interpretation of the objectives and activities of the society as charitable or commercial.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The assessee filed an application for condonation of delay in filing the appeal, arguing that the delay was due to the necessity of the governing body, comprising members from different states, to pass a resolution authorizing the appeal. The learned Departmental Representative opposed the condonation. The Tribunal, in the interest of justice, found sufficient cause for the delay and condoned it, allowing the appeal to proceed.

2. Rejection of Application for Registration under Section 12AA of the IT Act, 1961:
The assessee's appeal was against the order of the Director of IT (Exemptions), who rejected the application for registration under Section 12AA on the grounds that the income of the society was not wholly used for charitable activities but was also utilized for the payment of dividends. The Director of IT (Exemptions) noted that some of the society's objects were commercial in nature, which disqualified it from registration under Section 12AA, as it did not meet the necessary conditions of having charitable objects and genuine activities.

3. Interpretation of the Objectives and Activities of the Society:
The Tribunal examined the bye-laws of the society, particularly focusing on the utilization of net profit, which included the payment of dividends to members. The Tribunal referenced Section 2(15) of the IT Act, which defines "charitable purpose" and excludes activities involving trade, commerce, or business. The Tribunal concluded that the distribution of dividends, even to members, could not be considered charitable.

The Tribunal rejected the argument that the existence of a dividend distribution clause was irrelevant to the registration under Section 12A, emphasizing that the CIT is entitled to examine the genuineness of the activities and objects of the institution. The Tribunal cited the Supreme Court decision in Delhi Stock Exchange Association Ltd. vs. CIT, which held that an institution with a clause permitting the distribution of profits cannot be considered wholly charitable or religious. The Tribunal concluded that the enabling clause to distribute dividends disqualified the assessee from registration under Section 12A.

Conclusion:
The Tribunal upheld the Director of IT (Exemptions)'s decision, confirming that the society's objects and the application of its income did not meet the criteria for charitable purposes under Section 2(15) and Section 12AA of the IT Act. The appeal was dismissed, affirming that the society was not entitled to registration under Section 12A due to the existence of a dividend distribution clause.