2014 (4) TMI 821 - AT - Income Tax

Refusal to grant registration u/s 12AA of the Act Conditions necessary for registration u/s 12A(a) not fulfilled - Held that - The main objects of the company to be pursued on incorporation are contained in clause A(1) of the Memorandum of Association, wherein it is clearly mentioned that no objects of the company shall be carried out on commercial basis - the winding up / dissolution clause is in conformity with the conditions laid down under the Act the CIT, Jamnagar clearly erred in refusing to grant the registration sought by the assessee u/s 12AA of the Income-tax Act, 1961 thus, the CIT is directed to read the clause X of Memorandum of Association and clause 52 of Articles of Association, wherein it is clearly stated that if upon winding up or dissolution of the company there remains, after satisfaction of all the debts and liabilities any property whatsoever the same shall not be distributed amongst the members of the company but shall be given or transfer to such other company having object similar to the objects of this company - The assessee is an Educational and Charitable Trust and issuance of registration u/s 12AA is a primary condition for the start of the charitable activity of the trust, therefore its case has to be decided on priority basis - Decided in favour of Assessee.

Summary

Issues Involved:
1. Rejection of registration under Section 12AA of the Income-tax Act, 1961.
2. Distinction between registration under the Companies Act, 1956 and the Bombay Public Trust Act, 1950.
3. Dissolution clause in the Memorandum of Association and Articles of Association.

Issue-wise Detailed Analysis:

1. Rejection of registration under Section 12AA of the Income-tax Act, 1961:
The primary issue revolves around the refusal by the Commissioner of Income-tax, Jamnagar to grant registration under Section 12AA of the Income-tax Act, 1961. The Commissioner observed that the entity was registered under Section 25 of the Companies Act, 1956 as a company and not as a trust. Additionally, the Memorandum of Association did not contain a provision ensuring that upon dissolution, any remaining property would be transferred to another trust with similar objects. The Tribunal, however, found that the dissolution clause in the Memorandum of Association and Articles of Association did comply with the necessary conditions, stating that any remaining property would be transferred to another company with similar objects or as determined by the high court.

2. Distinction between registration under the Companies Act, 1956 and the Bombay Public Trust Act, 1950:
The Commissioner failed to distinguish between a trust registered under the Bombay Public Trust Act, 1950 and a company licensed under Section 25 of the Companies Act, 1956. The Tribunal noted that the formation of a Section 25 company and its charitable objects were not in dispute. The Tribunal also referenced the judgment of the Hon'ble Punjab & Haryana High Court in the case of CIT v. O.P. Jindal Global University, which held that a body corporate registered under Section 25 of the Companies Act, 1956 is entitled to registration under Section 12AA of the Income-tax Act, 1961.

3. Dissolution clause in the Memorandum of Association and Articles of Association:
The Commissioner objected to the dissolution clause, stating that the ultimate power of transfer in case of dissolution should not be determined by the members of the company. The Tribunal found that the dissolution clause in the Memorandum of Association and Articles of Association clearly stated that any remaining property upon dissolution would not be distributed among the members but transferred to another company with similar objects or as determined by the high court. This clause was found to be in conformity with the conditions laid down under the Act.

Conclusion:
The Tribunal concluded that the Commissioner of Income-tax, Jamnagar erred in refusing to grant registration under Section 12AA. The Tribunal directed the Commissioner to verify the original Memorandum and Articles of Association and, if the conditions were met, to grant the registration. The appeal was allowed for statistical purposes, and the assessee was directed to appear before the Commissioner within 15 days to expedite the process.