2015 (6) TMI 248 - AT - Income Tax

Registration under S.12A refused - Held that - The ratio of the decision of the Delhi High Court in the case of India Trade Promotion Organization (2015 (1) TMI 928 - DELHI HIGH COURT ) is directly applicable to the issue involved in the present case wherein held Merely because a fee or some other consideration is collected or received by an institution, it would not lose its character of having been estebtishea for a charitable purpose. It is also important to note that one must examine as to what is the dominant activity of the institution in question. If the dominant activity of the institution was not business, trade or commerce, then any such incidental or ancillary activity would also not fall within the categories of trade, commerce or business. The introduction of the proviso to s. 2(15) by virtue of the Finance Act, 2008 was directed to prevent the unholy practice of pure trade, commerce and business entities from masking their activities and portraying them in the garb of an activity with the object of a general public utility. It was not designed to hit at those institutions, which had the advancement of the objects of general public utility at their hearts and were charity institutions Thus respectfully following the above, we set aside the impugned order of the learned Director of Income-tax (Exemption), with a direction to grant registration to the assessee society under S.12A of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Denial of registration under Section 12A of the Income Tax Act.
2. Application of the proviso to Section 2(15) of the Income Tax Act.
3. Determination of whether the activities of the assessee qualify as charitable.

Issue-wise Detailed Analysis:

1. Denial of registration under Section 12A of the Income Tax Act:
The appeal was filed by the assessee against the order dated 30.7.2012 by the Director of Income-tax (Exemption) Hyderabad, who refused to grant registration under Section 12A of the Act. The assessee, an institution established under the Irrigation Department of the Government of Andhra Pradesh and later registered as a society, sought registration under Section 12A by filing Form No.10A on 19.1.2012. The Director of Income-tax (Exemption) required the assessee to furnish details and produce documents for verification. The assessee provided information about its main objects, which included training government functionaries and farmers in water and land management, providing consultancy services, and undertaking research.

2. Application of the proviso to Section 2(15) of the Income Tax Act:
The Director of Income-tax (Exemption) noted that although the assessee's activities fell under the ambit of advancing an object of general public utility, the substantial income earned from consultancy services indicated a commercial intention. Relying on the proviso to Section 2(15) inserted by the Finance Act, 2008, he held that the assessee's consultancy services disqualified it from being considered as carrying on charitable activities, thus denying registration under Section 12A.

3. Determination of whether the activities of the assessee qualify as charitable:
The Tribunal observed that the basic charitable nature of the assessee's aims and objectives was not disputed. The issue revolved around whether the income from consultancy services affected the charitable status. The Tribunal referred to the Delhi High Court's decision in the case of India Trade Promotion Organization v. Director of Income-tax (Exemption), which dealt with a similar issue. The High Court held that merely receiving income does not detract from an institution's charitable status if the dominant objective is not profit-making but promoting an object of general public utility. The proviso to Section 2(15) should not be interpreted to render Section 10(23C)(iv) redundant. The dominant activity and motive of the institution must be considered.

The Tribunal concluded that the ratio of the Delhi High Court's decision was directly applicable. The assessee's dominant objective was charitable, and the income from consultancy was incidental. Therefore, the proviso to Section 2(15) did not apply to disqualify the assessee from registration under Section 12A.

Conclusion:
The Tribunal set aside the impugned order of the Director of Income-tax (Exemption) and directed the grant of registration to the assessee society under Section 12A of the Act. The appeal was allowed, and the order was pronounced on 13th May 2015.