2014 (3) TMI 767 - AT - Income Tax

Rejection of application for registration u/s 12AA of the Act Assessee incorporated for charitable purposes - Held that - A perusal of the object clause of the company shows that it has been incurred with the aim of providing emergency medical transport services - Similar objects of the GVKEMRI has already been approved as charitable and registration u/s 12AA was already granted the DIT(E), ignored the provisions of section 2(15) and the Board Circular issued on this subject, considered that assessee is involved in commercial activities, just because assessee is getting some fixed remuneration for operating ambulance, ignoring the fact that the services to the general public is free of cost by the assessee company. The assessee was incorporated for charitable purpose of providing medical relief - assessee even though incorporated as a private limited company originally, has converted itself into a non-profit company and has been incorporated u/s 25 of the Companies Act, 1956 - There is no doubt with reference to the objects which are charitable in nature - Relying upon Social Pedia Knowledge Foundation Versus Director of Income-tax (Exemptions) 2013 (12) TMI 357 - ITAT CHENNAI - where the object of assessee-company was providing education etc., it is entitled to registration u/s 12AA, particularly when the assessee has been incorporated u/s 25 of the Companies Act, 1956 - The DIT(E), merely on certain assumptions has rejected the application of the assessee for registration under section 12AA - the DIT(E), selected some of the terms of the agreement so as to consider that assessee is a contract service provider, ignoring the overall object of the agreement and the activities of the assessee - The order of the DIT(E) is set aside and the DIT(E) is directed to grant registration to the assessee u/s 12AA Decided in favour of Assessee.

Summary

Issues Involved:
1. Rejection of application for registration under section 12AA of the Income Tax Act, 1961.
2. Determination of whether the assessee is a contract service provider or a charitable organization.
3. Consideration of the nature of activities performed by the assessee under the agreement with the Government of Uttar Pradesh.
4. Interpretation of the term "charitable purpose" under section 2(15) of the Income Tax Act.

Detailed Analysis:

1. Rejection of Application for Registration under Section 12AA:
The appeal was filed by the assessee against the order of the Director of Income Tax (Exemption), Hyderabad, dated 30th August 2013, which rejected the application for registration under section 12AA of the Income Tax Act, 1961. The assessee, a company registered under section 25 of the Companies Act, 1956, operates medical and transport services in Uttar Pradesh as part of the National Mission for providing Medical Transport Services. The Director of Income Tax (Exemption) rejected the application on the grounds that the assessee was a contract service provider and not a charitable organization.

2. Determination of Whether the Assessee is a Contract Service Provider or a Charitable Organization:
The Director of Income Tax (Exemption) analyzed the terms of the agreement between the assessee and the Government of Uttar Pradesh and concluded that the assessee was operating as a contract service provider, receiving consideration at a stipulated rate. The Director held that this disqualified the assessee from being granted registration under section 12AA, despite the company being registered as a non-profit entity under section 25 of the Companies Act.

3. Consideration of the Nature of Activities Performed by the Assessee:
The assessee contended that its activities were charitable in nature, aimed at providing emergency medical transport services free of cost to the residents of Uttar Pradesh. The services included operating ambulances, providing first aid, critical care, and transporting patients to the nearest medical centers. The assessee argued that these activities fell under the category of 'medical relief' as defined in the Income Tax Act. The assessee also highlighted that similar activities of GVKEMRI, the parent organization, had been recognized as charitable, and it had been granted registration under section 12AA.

4. Interpretation of the Term "Charitable Purpose" under Section 2(15):
The Tribunal considered the definition of 'charitable purpose' under section 2(15) of the Income Tax Act, which includes relief of the poor, education, and medical relief. The Tribunal noted that the proviso to section 2(15) excludes activities involving trade, commerce, or business from being considered charitable unless the aggregate value of receipts from such activities is ten lakh rupees or less in the previous year. The Tribunal observed that providing medical relief constitutes a charitable purpose even if it involves incidental commercial activities.

Judgment:
The Tribunal concluded that the assessee's activities were indeed charitable in nature, focusing on providing emergency medical transport services free of cost. The Tribunal noted that the Director of Income Tax (Exemption) had selectively considered certain terms of the agreement to label the assessee as a contract service provider, ignoring the overall charitable objectives and activities. The Tribunal set aside the order of the Director of Income Tax (Exemption) and directed the grant of registration to the assessee under section 12AA. The Tribunal also allowed the Director of Income Tax (Exemption) to withdraw the registration if the assessee's activities were found not in accordance with its objects in the future.

Conclusion:
The appeal of the assessee was allowed, and the Director of Income Tax (Exemption) was directed to grant registration under section 12AA, recognizing the charitable nature of the assessee's activities.