2016 (2) TMI 560 - AT - Income Tax

Grant of registration u/s 12AA rejected - Held that - If similar institutions having similar objects have been granted registration under section 12AA of the Income Tax Act, 1961, there is no justifiable reason as to why the assessee should be deprived from availing of such benefit. In the aforesaid facts and circumstances, we set aside the impugned order of the learned Director of Income-tax (Exemptions) and remit the matter to the Ld. DIT (Exemptions) to verify this aspect and if it is found that similar institutions in other places having similar objects have been granted registration under section 12AA, he may consider granting registration under section 12AA of the Act to the assessee. The learned Director of Income-tax (Exemptions) must afford reasonable opportunity of being heard to the assessee in the matter. - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:
1. Rejection of the application for registration under section 12AA of the Income Tax Act, 1961.
2. Determination of whether the assessee's activities are charitable or commercial in nature.
3. Consideration of similar institutions granted registration under section 12AA.

Detailed Analysis:

1. Rejection of the application for registration under section 12AA of the Income Tax Act, 1961:
The appeal is directed against the order dated 26.3.2014 by the Director of Income Tax (Exemptions), New Delhi, which rejected the assessee's application for registration under section 12AA of the Income Tax Act, 1961. The assessee, a company incorporated under section 25 of the Indian Companies Act, 1956, aims to complement vocational education in the Rubber Industry Sector. The application was made on 19.9.2013, but the Director of Income Tax (Exemptions) opined that the assessee's main source of income was a grant from the National Skill Development Council (NSDC) and considered the activities as commercial, thus rejecting the application.

2. Determination of whether the assessee's activities are charitable or commercial in nature:
The Director of Income Tax (Exemptions) viewed the assessee's activities as commercial, noting that the assessee charged fees from candidates and outsourced work to different organizations. The assessee argued that its activities, such as skill gap studies, establishing a Labour Market Information System (LMIS), developing National Occupation Standards (NOS), and training trainers, were in furtherance of its charitable objectives. The assessee emphasized that all incomes were utilized for promoting its aims and objects, with no profit motive. The Tribunal noted that the definition of "charitable purpose" under section 2(15) of the Act does not restrict institutions from undertaking commercial activities if they are not profit-driven and the income is used for charitable purposes. The Tribunal referred to the Supreme Court's ruling in Addl. CIT v. Surat Art Silk Cloth Manufacturers' Association, which held that the predominant object must be charitable, even if some profit arises from the activity.

3. Consideration of similar institutions granted registration under section 12AA:
The assessee highlighted that similar skill development councils had been granted registration under section 12AA of the Act. The Tribunal agreed that if similar institutions with similar objects were granted registration, the assessee should also be considered for such registration. The Tribunal remitted the matter to the Director of Income Tax (Exemptions) to verify this aspect and consider granting registration to the assessee if similar institutions had been granted registration.

Conclusion:
The Tribunal set aside the impugned order and remitted the matter to the Director of Income Tax (Exemptions) for reconsideration, emphasizing that the assessee should be given a reasonable opportunity to be heard. The appeal was allowed for statistical purposes, with the judgment pronounced in the open court on 27.11.2015.