2017 (12) TMI 933 - HC - Income Tax

Registration as a charitable institution under Section 12A denied - proof of charitable activities - Held that - It was incumbent upon the appellant to show that it had utilized its income, in advancement of the objectives as stated in the Memorandum of Association. The objectives of the Memorandum of Association have been extracted both in the order of the Commissioner and also of the Tribunal. It does not in fact speak of a constitution, for the purposes of merely canalizing the funds made available by the Government. The charitable activities of the appellant was only in applying the government funds; which too was not spent to the extent made available. As noticed by the Tribunal and the Commissioner, the charitable activities carried out by the appellant, was only in so far as expending the fund provided by the Government, that too, not to its full extent. The appellant was found to have not applied any part of their net income to the objectives stated in the Memorandum of Association. Thus, the appellant was also found to have not carried out any charitable activity in the relevant years, from the income derived from various activities of facilitation of certification and other matters in respect of the Non-Resident Keralites. The Tribunal found that, though technically, the objects of the appellant comes within the ambit of advancement of an object of general public utility, as described in Section 2(15) as it existed prior to the assessment year 2009-2010, it has not carried out any such charitable activity. - Decided against assessee.

Summary

Issues:
1. Registration as a charitable institution under Section 12A of the Income Tax Act, 1961.
2. Verification of source of funds and utilization to determine compliance with avowed objective.
3. Expenditure for charitable purposes and compliance with Memorandum of Association.

Analysis:

1. The appellant sought registration as a charitable institution under Section 12A of the Income Tax Act. The Division Bench of the High Court directed the Commissioner to verify the source of funds and its utilization to ensure alignment with the avowed objective. The appellant's object of promoting interests of nonresident Keralites was considered as advancing general public utility. However, concerns were raised regarding the possibility of the appellant being a profitable organization under the guise of charity, especially if unnecessary expenditures indicated a deviation from the stated charitable purpose.

2. The appellant claimed to aid Non-Resident Keralites through various schemes and interventions. The Department contended that funds for charitable activities were primarily provided by the State, and the appellant charged significant amounts for certification processes without substantial charity expenditure. The Commissioner's verification revealed that most charitable activities were funded by the Government, with decreasing percentages of expenditure from the provided funds over the years, raising questions about the appellant's utilization of income for charitable purposes.

3. The Tribunal and Commissioner found that the appellant failed to demonstrate significant utilization of income for charitable activities as per the Memorandum of Association. Despite technically falling within the scope of advancing general public utility, the appellant was deemed to have not carried out substantial charitable activities from its income derived through various facilitation activities for Non-Resident Keralites. Consequently, the High Court upheld the Tribunal's decision, rejecting the Income Tax Appeal due to the appellant's lack of compliance with charitable objectives and utilization of income for charitable purposes.