2018 (3) TMI 84 - AT - Income Tax

Application for registration u/s 12AA rejected - as per CIT-A objective clauses of the Trust are for the mutual benefit of Corrugated Box manufacturing persons - no advancement of any other objects of general public utility by the assessee as required u/s 2(15) - Held that - Andhra Pradesh Corrugated Box Manufacturers Association from which the assessee has been carved out, has similar objectives and has already been granted registration u/s 12AA which has since been not rescinded. The assessee has been formed on the bifurcation of the State of Telangana and is having the same objectives and therefore, it is also entitled for registration u/s 12AA of the Act on this ground alone. The objectives of the assessee are for the benefit of a particular trade. Whether restricting the benefit to the members of a particular trade disentitles it from registration u/s 12AA of the Act. This issue has first been examined in detail by the Constitution Bench of the Hon ble Supreme Court in the case of Surat Art Silk Cloth Manufacturers Association (1979 (11) TMI 1 - SUPREME Court). The Hon ble Supreme Court held that where the dominant and primary object of the assessee is to promote commerce and trade in art silk yarn etc., it is charitable and the other benefits which are incidental in carrying out the main or primary purpose of the assessee, would not make it not charitable. Also in the case of CIT vs. Andhra Chamber of Commerce (1964 (10) TMI 19 - SUPREME Court) held that the Chamber of Commerce did not cease to be charitable merely because the members of the chamber were incidentally benefitted in carrying out its main charitable purpose. - Decided in favour of assessee

Summary

Issues:
1. Rejection of application for registration u/s 12AA of the Act.
2. Whether the objectives of the assessee trust qualify as charitable under section 2(15) of the Act.

Issue 1: Rejection of application for registration u/s 12AA of the Act:
The assessee appealed against the order of the C.I.T (Exemptions) rejecting its application for registration under section 12AA of the Act. The rejection was based on the observation that the objective clauses of the trust were for the mutual benefit of Corrugated Box Manufacturers Association Members, rather than for general public utility as required under section 2(15) of the Act.

Issue 2: Qualification of objectives as charitable under section 2(15) of the Act:
The Tribunal analyzed whether the objectives of the assessee trust qualified as charitable under section 2(15) of the Act. It was noted that the Andhra Pradesh Corrugated Box Manufacturers Association, from which the assessee was carved out, had similar objectives and had already been granted registration under section 12AA of the Act. The Tribunal held that the assessee, having the same objectives, was entitled to registration under section 12AA. Additionally, the Tribunal referred to various legal precedents to support the contention that benefiting a particular trade or section of the public does not disentitle an organization from being considered charitable. Legal decisions such as the Surat Art Silk Cloth Manufacturers Association case and the Jodhpur Chartered Accounts Society case were cited to establish the charitable nature of organizations benefiting a specific trade or section of the public.

In conclusion, the Tribunal allowed the assessee's appeal, directing the CIT (Exemptions) to grant registration under section 12AA of the Act. The judgment emphasized that serving a charitable purpose does not necessarily require benefiting the whole of mankind, and organizations benefiting a section of the public can still be considered charitable. The decision was based on legal precedents and the similarity of objectives between the assessee and the previously registered association.