2013 (12) TMI 18 - AT - Income Tax

Object of general public utility rejection of registration under Section 12A - a company by shares not for profit under Section 25 of the Companies Act, 1956 - Held that - The assessee has incurred major portion of the expenditure on legal expenses and travelling expenses out of total expenditure - The assessee has not made any expenditure for charitable purposes to fulfill its objects After examining the documentary evidence filed by the assessee and perusing the objects of the assessee-company along with the income and expenditure account CIT(A) was not satisfied about the genuineness of the activities of assessee as well as the work performed by the assessee as these are contrary to the objects of the assessee-company Decided against assessee.

Summary

Issues Involved:
1. Eligibility for registration under Section 12A of the Income Tax Act, 1961.
2. Definition and scope of "Charitable purpose" under Section 2(15) of the Income Tax Act, 1961.
3. Examination of the genuineness of the activities of the assessee company.

Detailed Analysis:

1. Eligibility for registration under Section 12A of the Income Tax Act, 1961:

The assessee filed an application for registration under Section 12A on 15.03.2012, claiming that its objectives were charitable. The Commissioner of Income Tax-I, Jalandhar, rejected this application, determining that the activities of the assessee were not charitable because the services were rendered upon payment of usage charges, which constituted a business activity. The Commissioner concluded that the assessee's activities were commercial in nature and thus did not qualify for registration under Section 12A.

2. Definition and scope of "Charitable purpose" under Section 2(15) of the Income Tax Act, 1961:

The assessee claimed that its activities fell under the residual category of "advancement of any other object of general public utility" as defined in Section 2(15). The Commissioner, however, held that since the assessee charged fees for its services, it did not meet the criteria for a charitable purpose. The first proviso to Section 2(15) excludes any activity in the nature of trade, commerce, or business, or any service rendered for a fee, from being considered charitable, regardless of whether the fees cover only basic costs.

3. Examination of the genuineness of the activities of the assessee company:

The Commissioner and the Tribunal examined the documentary evidence and the income and expenditure account of the assessee. They found that the assessee had not incurred any expenditure towards charitable activities. Instead, significant amounts were spent on legal and traveling expenses. The Tribunal upheld the Commissioner's view that the assessee failed to demonstrate that its activities were genuinely charitable and aligned with its stated objectives.

Conclusion:

The Tribunal concluded that the Commissioner of Income Tax-I, Jalandhar, had rightly rejected the application for registration under Section 12A. The assessee's activities did not qualify as charitable under Section 2(15) due to the commercial nature of the services provided. The appeal filed by the assessee was dismissed, and the impugned order dated 24/25.09.2012 was upheld. The Tribunal emphasized that for registration under Section 12A, both the objects and the activities of the trust or institution must be genuinely charitable, which was not established in this case.