2015 (6) TMI 721 - AT - Income Tax

Non-granting of registration u/s 12A - the basic intention of the assessee company is to earn profit out of its activities and to make payment of dividend out of the same to the concerned persons / authorities - Held that - As seen from the Memorandum of Association and Articles of Association filed by the assessee before us, the object of the assessee cannot be said that it is in the nature of general public utility and the objects stated therein make the assessee a commercial orginsation and there is no stipulation on utilization of income only for the purpose of charitable activities. The assessee being a commercial organisation just like any business entity engaged in the real estate business. The surplus funds generated by the assessee throughout various activities could be distributed as dividend and there is no restriction for declaration of dividend to the members of the assessee company as is evident from the Clause No. 99 of the Articles of Association. As the dominant object of the assessee was not charity, either its commercial activity carried on with profit motive and also there is no clause for application of income for charitable activities including relief to poor, education or medical relief and advancement of any other object of general public utility. There is nothing in this case which provides services to the mankind on charity basis. The argument of the learned counsel is not tenable because a charitable institution provides services for charitable purposes free of cost and not for gain. The object of the assessee is similar to activities performed by big developers, who are earning profit . If the registration is granted to the assessee u/s 12A of the Act, then, it will open pandora s box and everybody will claim exemption from tax, who are incidentally doing some charitable activities in providing parks or roads. The activities of the assessee is nothing but profit making activities for which it is taking money from general public and no charity activities are carried on for the public. Considering all these facts brought on record by the DIT(E), in our considered view, the assessee is not entitled for grant of registration u/s 12A of the Act. Being so, we do not find infirmity in the order of the DITE) in refusing to grant registration u/s 12A to the assessee and accordingly, the order of the DIT(E) is hereby confirmed dismissing the appeal of the assessee. - Decided against assessee.

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Non-granting of registration under Section 12A of the IT Act, 1961.
3. Determination of the nature of the assessee's activities as charitable or commercial.

Detailed Analysis:

1. Delay in Filing the Appeal:
The assessee filed the appeal with a delay of 25 days, attributing the delay to administrative reasons. An affidavit was submitted affirming these reasons and requesting condonation of the delay. After considering the submissions from both parties, the tribunal condoned the delay and admitted the appeal for adjudication.

2. Non-granting of Registration under Section 12A of the IT Act, 1961:
The primary grievance of the assessee was the non-granting of registration under Section 12A of the IT Act. The assessee had initially filed an application in Form No. 10A on 26/10/2006, which was rejected by the DIT(E) on 24/04/2007. The Tribunal, in an earlier round, had remitted the issue back to the DIT(E) for re-examination. Upon re-examination, the DIT(E) observed that the activities of the assessee could not be considered charitable as defined under Section 2(15) of the IT Act. The DIT(E) highlighted that the main objective of the assessee was to promote and execute housing schemes, which did not fall under 'charitable purposes' as per the Act.

3. Determination of the Nature of the Assessee's Activities:
The DIT(E) noted that the assessee's activities included construction and development, which were commercial in nature. The Memorandum of Association indicated that the assessee intended to carry on business in construction materials and enter into profit-sharing partnerships, further supporting the commercial nature of its activities. Additionally, the presence of clauses related to Reserve Fund and Dividend in the Memorandum of Association suggested a profit motive. The DIT(E) concluded that the primary intention of the assessee was to earn profit and declare dividends, disqualifying it from being considered a charitable institution under Section 12AA of the Act.

The Tribunal referred to a decision by a coordinate bench in a similar case involving Tirupathi Urban Development Authority, which upheld the rejection of registration under Section 12AA for similar reasons. The Tribunal emphasized that a charitable institution provides services free of cost and not for gain. The assessee's activities, akin to those of commercial developers, involved profit-making, disqualifying it from being considered charitable.

The Tribunal also considered various judicial precedents cited by the assessee, but ultimately found them unpersuasive in altering the conclusion that the assessee's activities were commercial rather than charitable. The Tribunal upheld the DIT(E)'s order, confirming that the assessee was not entitled to registration under Section 12A of the IT Act.

Conclusion:
The appeal was dismissed, affirming the DIT(E)'s decision to refuse registration under Section 12A, as the assessee's activities were deemed commercial with a profit motive, rather than charitable.