2014 (8) TMI 832 - AT - Income Tax

Rejection of application of registration u/s 12A Approval u/s 80G Charitable purpose u/s 2(15) - Held that - Medical relief, education, relief to the poor and advancement of any other object of general public utility will come within the ambit of charitable purpose - the DIT(E) cannot lay stress upon the objects incidental or ancillary to main objects to assume that the intention of the assessee is commercial in nature Relying upon ICAI Accounting Research Foundation Vs. DCIT 2009 (8) TMI 61 - HIGH COURT OF DELHI - for achieving the main charitable object if an institution carries on some commercial activity and generate profit there from, such activities cannot be considered to be the business activity with profit motive so long as the profit earned is utilized for the purpose of achieving the charitable object - the DIT(E) cannot come to a conclusion merely on assumptions and presumptions that the assessee has violated or will violate the provisions contained in section 11 of the Act. DIT(E) at the time of grant of registration u/s 12A cannot step into the shoes of the AO to examine whether the assessee has carried out any activity with profit motive or there is violation of conditions laid down u/s 11 of the Act - DIT(E) has not found any adverse material to show that the main objects of the assessee are not of charitable nature or its activities are not genuine - the question of exemptions under section 11 and 12 would only come at the time when the trust/institution is assessed to tax thus, DIT(E) was not correct in rejecting assessee s application u/s 12A of the Act - DIT(E) is directed to grant registration u/s 12A of the Act to the appellant institution and also consider granting approval u/s 80G(5) of the Act subject to fulfillment of conditions laid down under clause (i) to (v) of section 80G(5) of the Act Decided in favour of Assessee.

Issues Involved:
1. Rejection of application for registration under section 12A of the Income Tax Act.
2. Rejection of approval under section 80G of the Income Tax Act.
3. Allegation of commercial intention by the assessee.
4. Allegation of intention to carry out activities outside India.
5. Allegation of not conducting any charitable activity independently.

Issue-wise Detailed Analysis:

1. Rejection of application for registration under section 12A of the Income Tax Act:
The assessee, a company registered under the Companies Act, 1956, applied for registration under section 12A and approval under section 80G of the Income Tax Act. The DIT(E) rejected the application, which led the assessee to appeal before the ITAT. The ITAT remitted the matter back to the DIT(E) for reconsideration. Upon reevaluation, the DIT(E) again rejected the application. The ITAT examined whether the DIT(E) was correct in rejecting the application based on the objects and activities of the assessee.

2. Rejection of approval under section 80G of the Income Tax Act:
The DIT(E) also rejected the assessee's application for approval under section 80G. The ITAT directed the DIT(E) to reconsider granting approval under section 80G(5) subject to the fulfillment of the conditions laid down under clauses (i) to (v) of section 80G(5).

3. Allegation of commercial intention by the assessee:
The DIT(E) objected that the assessee intended to acquire patents, copyrights, and licenses, indicating a commercial intention. The ITAT noted that the DIT(E) had no doubts about the charitable nature of the main objects. It emphasized that incidental or ancillary objects should not overshadow the main charitable objects. The ITAT referred to judicial precedents, stating that if commercial activities are carried out to achieve the main charitable object, they do not negate the charitable nature of the institution.

4. Allegation of intention to carry out activities outside India:
The DIT(E) assumed that the assessee intended to carry out activities outside India, violating section 11 of the Act. The ITAT found this assumption baseless as there was no material evidence to show that the assessee had actually carried out or intended to carry out activities outside India. The ITAT held that the DIT(E) cannot deny registration based on mere assumptions and presumptions.

5. Allegation of not conducting any charitable activity independently:
The DIT(E) alleged that the assessee had not conducted any charitable activity independently. The ITAT found this allegation without basis, as the material on record indicated that the assessee had undertaken activities in line with its objects. The ITAT clarified that at the stage of granting registration under section 12A, the DIT(E) should only satisfy himself about the objects and genuineness of the activities, not the utilization of funds or the commercial nature of activities. These aspects are to be examined by the AO at the time of assessment.

Conclusion:
The ITAT concluded that the DIT(E) was not correct in rejecting the assessee's application for registration under section 12A and directed the DIT(E) to grant registration. Additionally, the ITAT directed the DIT(E) to consider granting approval under section 80G(5) subject to the fulfillment of the specified conditions. The appeal of the assessee was allowed.

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