2016 (5) TMI 146 - AT - Income Tax

Registration u/s. 12A denied - whether the activities carried out by the assessee are in nature of business ? - Held that - The applicant-society s main activity is to provide education in the field of welding which fully complies to the charitable purposes as per section 2(15) because poor and indigent people are allowed to participate in the course training programmes free of cost for acquiring the skill and getting the employment indirectly improving their living standard; the school drop outs and youth or rural area below poverty line get free training in welding to bring them in the main stream of their life; special programme for disadvantaged women for their own livelihood for welder training. As per the Rules & Regulations of the society the main source of the Society is membership fee donations royalties government grants savings from conferences workshops seminar course fees and sale of publication etc. The income and property of the Society however derived shall be applied towards the promotion of the objects subject nevertheless in respect of the expenditures of grants or donations made with any specific conditions as may be imposed from the donors. No portion of the income and property of the society shall be paid or transferred directly or indirectly by way of dividends bonus or otherwise or by way of profits to any persons who at any time are or have been members of the society or to any of them or to any persons claiming through them or any of them provided that nothing herein contained shall prevent the payment in good faith of remuneration to any members or other persons in return for any services rendered to the Institute. In our opinion the Society is doing its activities as per its aims and objectives and working for a good cause and not earning any profit. Thus the registration u/s. 12A granted to the Applicant forthwith. - Decided in favour of assessee

Summary

Issues Involved:
1. Rejection of application for registration under Section 12A of the Income Tax Act.
2. Determination whether the activities of the assessee fall under "General Public Utility" or "Education" as per Section 2(15) of the Income Tax Act.
3. Assessment of whether the activities are in the nature of business and thus ineligible for registration under Section 12A.

Issue-wise Detailed Analysis:

1. Rejection of Application for Registration under Section 12A:
The assessee filed an application for registration under Section 12A of the Income Tax Act on 30.03.2013. The Director of Income Tax (Exemptions) [DIT(E)] rejected the application, holding that the activities of the assessee fall under "General Public Utility" (GPU) and are in the nature of business. The gross receipts exceeded the limit stipulated in the second proviso to Section 2(15), making the assessee ineligible for registration under Section 12A.

2. Determination of Activities as "General Public Utility" or "Education":
The assessee argued that it was imparting education within the meaning of Section 2(15) of the Act. The DIT(E) disagreed, stating that the activities were more aligned with skill enhancement rather than formal education. The DIT(E) referred to the Supreme Court decision in Sole Trustee Lok Shiksha Trust vs. CIT (1975) 10 ITR 234 (SC), which defined "education" as systematic instruction, schooling, or training given to young in preparation for the work of life. The DIT(E) concluded that the assessee's activities did not meet this definition and categorized them under GPU, which involves carrying on activities in the nature of business.

3. Assessment of Activities as Business:
The DIT(E) noted that the assessee was charging fees for its services, which included structured course subscriptions, seminar and delegate fees, sponsorships, and share income from collaborations. The DIT(E) argued that these activities were systematic and continuous, involving transactions between two persons with an element of reciprocity, thus constituting business activities. The DIT(E) cited various judicial precedents to support the view that the presence of these elements indicates business activities, irrespective of profit motive.

Tribunal's Findings:
The Tribunal reviewed the aims and objectives of the assessee society, which included promoting welding technology, facilitating exchange of ideas, organizing educational programs, and offering flexible learning programs. The Tribunal noted that the society was engaged in providing technical education and training through structured courses, seminars, and collaborations with universities. The society also conducted skill development programs for the poor and unemployed under government schemes.

The Tribunal emphasized that the activities of the society were educational in nature, as they involved systematic instruction and training in welding technology. The Tribunal cited the Supreme Court's definition of "education" and concluded that the assessee's activities met this definition. The Tribunal also noted that the society did not work for profit and any fees charged were to cover expenses.

Conclusion:
The Tribunal found that the assessee's activities were charitable as per Section 2(15) of the Income Tax Act, focusing on education rather than business. The Tribunal directed the DIT(E) to grant registration under Section 12A to the assessee, thereby allowing the appeal.

Order:
The appeal of the assessee was allowed, and the DIT(E) was directed to grant registration under Section 12A of the Income Tax Act.