2013 (9) TMI 341 - AT - Income Tax

Charitable activity u/s 2(15) - Registration of application u/s 12AA - Charitable work or public utility - Construction of shushk (dry) shauchalya (latrines) in the villages for proper sanitation - Held that - assessee s case falls within the ambit of carrying on an activity for consideration. The assessee has not constructed the shushk shauchalya as a part of a social service but it only executed the contract awarded by DUDA. If the contention of the assessee is accepted, then every contractor who is constructing the roads, bridges or airports, power generation plants etc. can claim that they are doing the charitable work. From the income and expenditure account of the assessee for the immediately preceding two years, it is evident that the only activity carried out was for the execution of the contract awarded by DUDA. In view of the above, in our opinion, the assessee s case squarely falls within the ambit of proviso to Section 2(15) and, since the assessee is carrying on the activity for consideration being the contract amount received from DUDA, the same cannot be said to be charitable purpose. Once the activity of the assessee does not fall within the ambit of definition of charitable purpose , the learned CIT rightly refused to register the society for the purpose of Section 12A - Decided against assessee.

Summary

Issues Involved:
1. Whether the activity of constructing dry latrines qualifies as a charitable activity under Section 2(15) of the Income-tax Act.
2. Whether the assessee's activities are in the nature of trade, commerce, or business, and therefore, not eligible for registration under Section 12AA.

Issue-wise Detailed Analysis:

1. Charitable Activity under Section 2(15):
The primary contention of the assessee was that the construction of dry latrines (shushk shauchalya) in villages for proper sanitation is a charitable activity under the category of "advancement of any other object of general public utility" as defined in Section 2(15) of the Income-tax Act. The assessee argued that this activity contributes to environmental preservation and public welfare, thus falling within the scope of charitable purposes. The assessee relied on the decision of the Hon'ble Patna High Court in the case of DCIT Vs. Sulabh International Social Service Organisation to support its claim that such activities are charitable.

2. Nature of Activities - Trade, Commerce, or Business:
The learned CIT rejected the application for registration under Section 12AA, stating that the activities of the assessee were in the nature of civil construction work and were performed under a contract with DUDA (District Urban Development Authority). The CIT observed that the society received substantial sums from DUDA for constructing latrines and incurred significant expenses for labor and materials. The CIT concluded that these activities were primarily business activities aimed at earning income, rather than charitable activities. The CIT referred to the proviso to Section 2(15), which excludes any activity in the nature of trade, commerce, or business from being considered charitable if it involves any consideration.

Tribunal's Findings:
The Tribunal upheld the CIT's decision, emphasizing that for registration under Section 12AA, the Commissioner must be satisfied about the genuineness of the activities and the charitable nature of the objectives. The Tribunal noted that the assessee's only activity was the execution of a contract awarded by DUDA for constructing dry latrines, which involved consideration and was akin to a business activity. The Tribunal distinguished the facts of the present case from the Karnataka High Court decision in Sanjeevamma Hanumanthe Gowda Charitable Trust, where the issue of carrying out activities for consideration was not addressed.

The Tribunal concluded that the assessee's activities fell within the ambit of the proviso to Section 2(15), as they were carried out for consideration and were in the nature of trade, commerce, or business. Consequently, the activities did not qualify as charitable purposes, and the CIT rightly refused the registration under Section 12AA.

Conclusion:
The appeal by the assessee was dismissed, and the Tribunal upheld the order of the learned CIT, confirming that the construction of dry latrines under a contract with DUDA constituted a business activity and did not qualify as a charitable purpose under Section 2(15) of the Income-tax Act. The decision was pronounced in the open Court on 6th September 2013.