2019 (1) TMI 1619 - HC - Income Tax

Exemption u/s 11 - employment facilitation as charitable activity u/s 2(15) - whether objects of the applicant company are not confined to the territories comprised in India but encompass the whole world, thus defeating the very purpose of provisions of Section 12AA? - HELD THAT - The primary object of the Trust is to conduct work in area of research, studies, training, education, health etc. on a non-profit basis, only for charitable purposes. Tribunal examined these object clauses and found that the objects of the Trust were genuine and that the Assessee was not incorporated for profit motive. We do not find any error in the order of the Tribunal. - Decided against revenue.

Summary

Issues:
Interpretation of section 2(15) of the Income Tax Act, 1961 regarding the charitable nature of the applicant company's main objects.
Validity of the Tribunal's decision in granting registration to the applicant company under section 12AA of the Income Tax Act, 1961.

Analysis:

1. Interpretation of section 2(15) of the Income Tax Act, 1961:
The Revenue appealed against the Tribunal's judgment, questioning the Tribunal's failure to recognize that the employment facilitation, as a primary object of the applicant company, does not fall under the charitable or non-commercial category as per section 2(15) of the Income Tax Act, 1961. The Tribunal, in its decision, carefully examined the Memorandum of Association of the company, highlighting that the main objects of the company were focused on conducting non-profit work in various educational and developmental areas. The Tribunal noted that the company's objects explicitly stated that none of its activities would be carried out on a for-profit basis. Consequently, the Tribunal concluded that the applicant company was genuinely incorporated under section 25 of the Companies Act, 1956, without a profit motive, and thus deserved registration under section 12AA of the Income Tax Act, 1961.

2. Validity of the Tribunal's decision on registration under section 12AA:
The Tribunal's analysis focused on the genuine nature of the Trust's objects, emphasizing that the Trust was established for conducting work in research, studies, training, education, and health on a nonprofit basis, solely for charitable purposes. The Tribunal found no fault in the Trust's objectives and concluded that the Assessee was not formed with a profit motive. Subsequently, the High Court upheld the Tribunal's decision, stating that the primary purpose of the Trust was charitable in nature, and the Tribunal's judgment was free from error. As a result, the Tax Appeal was dismissed, affirming the Tribunal's decision to grant registration to the applicant company under section 12AA of the Income Tax Act, 1961.

In summary, the High Court's judgment upheld the Tribunal's decision to grant registration to the applicant company under section 12AA of the Income Tax Act, 1961, based on the genuine charitable objectives outlined in the Memorandum of Association, which indicated a non-profit motive and a focus on educational and developmental activities.