2016 (2) TMI 375 - AT - Income Tax

Non-granting of registration u/s 12AA - main object of the assessee is to provide resources for advanced education for peoplewho deserve it - Held that - The purpose of a trust or institution is relief of the poor education or medical relief the requirement of the definition of charitable purpose would be fully satisfied even if an activity for profit is carried on in the course of the actual carrying out of the primary purpose of the trust or institution. At this stage it is also pertinent to note that the clause not involving carrying any activities of profit were omitted from this definition by the Legislature by Finance Act 1993 with effect from 1st April 1983. Therefore after such omission the element of profit cannot be excluded from the definition charitable purposes u/s 2(15) of the Act. According to this provision if any educational institution is running on commercial basis then the income of such educational institution cannot be exempted from taxation. However such institution can claim exemption u/ss 11 & 12 of the Act if it involves charitable activities. After complying the requirement of sec. 11 of the Act if there is any violation either in sec. 11 or 13 profit of such institution would be taxable because some profit has been earned by the institution registration u/s 12AA cannot be denied so long as provisions of sections 11 12 & 12 of the Act are complied with. So long as it is established that income of the institution has been applied for the purpose for which it was established in terms of sec. 2(15) of the Act and there is no violation of sec. 13 the assessee would be entitled to enjoy the benefit of registration u/s 12AA of the Act. If the assessee is established for charitable activities and in the course of carrying out charitable activities the assessee earns profits then such institution will not be debarred or disentitled for registration u/s 12AA. Therefore registration u/s 12AA would not be relevant by itself for claiming exemption u/s 11 of the Act. The objects of the trust and its genuineness have to be examined by the DIT(E) while granting registration u/s 12AA of the Act. In view of the above discussion the DIT(E) is directed to grant registration u/s 12AA of the Act to the assessee-trust. - Decided in favour of assessee

Summary

Issues:
1. Non-granting of registration u/s 12AA of the Act
2. Scope of enquiry by the DIT(E) u/s 12AA of the Act
3. Interpretation of "charitable purpose" under sec. 2(15) of the Act

Issue 1: Non-granting of registration u/s 12AA of the Act:
The appeal was against the Director of Income-tax (Exemptions) for not granting registration u/s 12AA of the Act. The Director cited the judgment in CIT vs Sheela Christian Charitable Trust and noted that the date mentioned in 12AA(2) of the Act is directory, not mandatory. The Director rejected the application based on the object clause of the assessee, which was deemed to permit engaging in commercial activities, not falling under the definition of 'charitable purpose' as per sec. 2(15) of the Act. The DIT(E) observed that the assessee had not conducted charitable activities, leading to the rejection of the registration application.

Issue 2: Scope of enquiry by the DIT(E) u/s 12AA of the Act:
The Tribunal discussed the scope of enquiry by the DIT(E) under sec. 12AA of the Act. It highlighted that the DIT(E) is limited to ascertaining whether the objects are charitable or not. The nature of the inquiry depends on whether activities have commenced. In this case, the DIT(E) had to determine if the activities fell under sec. 2(15) of the Act. The Tribunal emphasized that the DIT(E) should focus on the charitable nature of the activities rather than commercial aspects.

Issue 3: Interpretation of "charitable purpose" under sec. 2(15) of the Act:
The Tribunal analyzed the object clause of the assessee-trust to determine if it aligned with the definition of "charitable purpose" under sec. 2(15) of the Act. It referenced the Supreme Court's decision in Surat Art Silk & Cloth Mfrs Association, emphasizing that the requirement of 'not involving the carrying on of any activity for profit' was omitted from the definition by the Legislature. The Tribunal clarified that as long as the institution's income is applied for charitable purposes and there is no violation of relevant sections, registration u/s 12AA should be granted. It concluded that the DIT(E) should grant registration u/s 12AA to the assessee-trust.

In conclusion, the Tribunal directed the DIT(E) to grant registration u/s 12AA of the Act to the assessee-trust, allowing the appeal. The judgment emphasized the importance of focusing on the charitable nature of activities while considering registration under the relevant provisions of the Income Tax Act.