2013 (12) TMI 357 - AT - Income Tax

Registration u/s 12AA The assessee company was registered under section 25 of the Companies Act, 1956 with the object of education, social and economic empowerment - Held that - As per the Circular No. 11 of 2008 dated December 19, 2008 - where the purpose of a trust or institution is relief of the poor, education or medical relief, preservation of medical environment or preservation of historic monuments, it will constitute charitable purposes even if it incidentally involves commercial activities The object clause of the company shows that it has been incorporated with the aim of providing education, facilitate social and economic empowerment, economic development programs, literacy programs, training programs for villagers and downtrodden people - The application cannot be rejected merely on the assumption that commercial activity will be carried out - Decided in favour of assessee.

Issues:
1. Rejection of application for registration under section 12AA of the Income-tax Act.
2. Interpretation of "charitable purpose" under section 2(15) of the Act.
3. Consideration of educational activities as charitable.
4. Application of circular regarding exemption under section 11 for charitable institutions.

Detailed Analysis:
1. The appeal was filed by the assessee challenging the rejection of their application for registration under section 12AA of the Income-tax Act by the Director of Income-tax (Exemptions). The assessee, a company registered under section 25 of the Companies Act, 1956, had incorporated with the main objects of promoting education, social and economic empowerment, literacy programs, and training for villagers and downtrodden people. The Director rejected the application based on the assumption that commercial harnessing of the company's activities could not be ruled out. The assessee contended that their activities were charitable in nature and that registration should have been granted initially, with the option to withdraw it later if necessary.

2. The main issue revolved around the interpretation of "charitable purpose" as defined in section 2(15) of the Act. The definition includes relief of the poor, education, medical relief, preservation of the environment, and advancement of any other object of general public utility. The contention was whether education could be considered a charitable activity. The circular issued in 2008 clarified that entities engaged in activities like education for the relief of the poor or other charitable purposes could still qualify for exemption under section 11, even if they incidentally carried out commercial activities.

3. The Tribunal analyzed the objects of the assessee-company, which focused on providing education, social and economic empowerment, and development programs for the underprivileged. It was emphasized that providing education was a charitable activity, and the company's incorporation under section 25 of the Companies Act indicated its non-profit nature. The Tribunal concluded that the Director's rejection of the registration application was based on assumption and directed the grant of registration under section 12AA to the assessee, with the provision for withdrawal if the activities deviated from the stated charitable objects.

4. The Tribunal referred to the circular issued in 2008, which clarified that entities engaged in charitable activities, including education for the relief of the poor, could still qualify for exemption under section 11, even if they engaged in commercial activities. This circular supported the Tribunal's decision that educational activities aimed at social welfare could be considered charitable, even if the organization earned benefits from such activities. The Tribunal's decision to allow the appeal and grant registration under section 12AA was in line with the principles outlined in the circular and the Act regarding charitable purposes and exemptions.

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